Vancity's 2008 Annual Report

CORP-009-BK (R.2009) V ancity wordmark-Positi ve V ersion 08 Annual Report CORP-009-BK (R.2009) V ancity wordmark-Positi ve V ersion 08 Annual Report † Where 2008 targets were set, these are shown. “-“ indicates no targets were set. were targets no “-“ indicates shown. are these set, were targets 2008 † Where subsidiaries/affiliates. its and Union Credit the comprises Group Vancity * The summary ofourperformance 2006-2008 CO

earnings consolidated pre-tax 3years’ previous average %of donations: Corporate dollars) of (billions score loyalty Member Total assets Efficiency ratio Efficiency

service with satisfaction Member index engagement Employee work to place agreat Being Total Key results indicators Key results environment and community the to benefit expertise and resources our we use % agree Total number of members/clients members/clients of Total number service outstanding Providing Net earnings Net dollars) of millions (consolidated, managers financial effective and responsible Being

Community leadership portfolio leadership Community by example Leading Public Personal members Personal Vehicle fleet Vehicle Personal members members Personal Employees use energy Premises by single occupancy vehicles occupancy by single work to/from commuting Employee members Personal and vehicle) and (air travel business Employee use Paper Employees All clients All Business members Business 2 equivalent emissions (metric tonnes) (metric emissions equivalent (2) (15) (15) (6) (19) (14) (9) (11)

(13) Vancity Credit Union Credit Vancity Vancity Group Group Vancity Group Vancity Vancity Credit Union Credit Vancity Group Vancity Vancity Credit Union Credit Vancity Citizens Bank Citizens Organization Vancity Group Vancity Vancity Insurance Insurance Vancity Vancity Credit Union Credit Vancity Group Vancity Group Vancity Vancity Group Vancity Vancity Credit Union Credit Vancity Vancity Group* Vancity Vancity Insurance Insurance Vancity Citizens Bank Bank Citizens Citizens Bank Bank Citizens Vancity (10) (10) (20) Performance ▼ n/a / ▲ ▲ ▼ ▼ ▲ ▲ ▼ ▲ ▲ ▲ ▼ ▲ ▲ ▲ ▲ ▼ ■ ■ ■ ■ ■ - - - - (12) / ■ 2008 targets 2008 10% increase 10% 6,000 84.4% n/a $38.3 60% 59% 82% 47% 93% 75% (18) (12) ------† 407,120 29,520 39,370 $14,532 85% $46.8 12.0% 2008 2,017 5,271 1,524 80% 40% 30% 56% 54% 62% 47% 57% 74% 894 81% 81% 792 $1.1 44 (7) (4) (3) (5) 5,524 388,000 $14,107 85.5% 36,900 2,146 1,482 25,200 $32.8 868 58% 2007 5.7% 88% 89% 68% 64% 50% 78% 47% 33% 992 n/a n/a (16,17) $1.1 36 (16) (16) (17) (8) (1) (1) (1) 355,000 2,390 24,600 $12,281 32,700 79.9% 54% 2006 $45.3 1,290 8.5% 84% 66% $0.9 47% 93% 75% 800 n/a n/a n/a n/a n/a (17) (8) - - - performance and impacts, visit vancity.com/accountability07. vancity.com/accountability07. visit impacts, and performance – projects development and investments and loans deposits, member/client Includes: (11) 2008. in introduced measure (10) Group emotional and intellectual employees’ measure to designed questions key six Comprises (9) insurance and purchasers insurance surveys: two of results weighted reflect to Re-stated (8) years. previous to comparable not and methodology in Change (7) member business replaces 2008; in introduced measure loyalty member business New (6) Greater with merger our of aresult as joined who members 3,085 includes total 2008 The (5) members Bank of number the counting for Methodology customers. Visa-only Excludes (4) Greater with merger our of aresult as joined who members 4,587 includes total 2008 The (3) after revenue bytotal divided donations) community (including expenses non-interest Total (2) explanation. for Statements Financial the 4to Note See re-stated. been has Data (1) (CO data emission GHG verified 2008 Our data. emissions GHG our verifying of process the in are and we verified externally been has data financial The ▼ ▲ ■ Legend andNotes performance from 2006-2008.For afuller picture The table (at left) provides asnapshot ofour accountability andtransparency inthebusiness world. around four-fifths agree they are concerned about Andmembers telland trust. as usthisisimportant, demonstrates accountability andbuilds loyalty our performance ina meaningful andcredible way decisions. We believe that managing andreporting performance inorder to make better-informed It provides uswithacomplete picture ofour employees, andthecommunities where we operate. influence our long-term success: ourmembers, keep ontop ofwhat matters most to those who Accountability reporting helps usunderstand and since 1998. why we have beenproducing accountability reports good for business, andtherightthingto do.Thisis term, sustainable approach to doingbusiness isboth economic, environmental, orsocial. Taking along- members andowners –for all ofourimpacts, bethey measure, disclose, andbeaccountable to you –our As afinancial co-operative we feel it’s important to to ourmembers we measure what’s important benefits. environmental and/or social have which products organization. the in involvement renewers. satisfaction. service 2008. February in Services Insurance Savings Victoria time. over data of comparability affects and 2008 in changed 2008. February in Savings Victoria better. is ratio efficiency alower general, In provision. loss loan 2007 since worsened has =performance 2007 since improved has =performance stable is =performance 2 e) will be published on Vancity’s website (vancity.com) once available. For more information on our economic, social and environmental issues, issues, environmental and social economic, our on information more For available. once (vancity.com) website Vancity’s on published be e) will know” “don’t responded 2007 in cent per 15 and 2008 in (20) 16 members of cent per more represent to tends statistically which members union’s credit the of survey (19) Panel growth (excluding tonnes 6,000 at emissions gas greenhouse our maintain (18) Specifically: CO improved using updated commuting employee for data 2007 and (17) 2006 verification. of aresult as updated (16) Data systems. accounting improved to due 2007 in broadened was collected data of scope (15) The January-December from changed data emissions energy premises for period reporting (14) The Victoria Greater and data) 2007 from (excluded Union Credit Squamish includes data (13) 2008 are profits net of cent per 30 program, Success Shared our Through applicable. =not (12) N/A [email protected]. efforts performance, orsustainability emailusat: have anycomments orsuggestions onourreporting Your input and feedback to isimportant us,so ifyou expectations for disclosure full ofourkey issues. and more accessible to readers, while meeting still looking at ways we can make ourreports shorter our Annual andAccountability We’re Reports. also key information more frequently, includingintegrating every two years, butwe’re exploring ways to report We currently produce anAccountability once Report business or purchasing decisions. environmental factors into account whenmaking it encourages you, asconsumers, to take social and other organizations to follow ourlead. We also hope positive impact reporting hasonourbusiness inspires and credibility, andwe hopeoursuccess andthe are widely recognized for their comprehensiveness improve ourperformance. Ouraward-winning reports employees, andspecific targets and commitments to successes andchallenges, theviews ofmembers and accountability07. Thisreport includesdata, ourkey 2006-07 Accountability onlineat Report vancity.com/ of ourperformance, view ourexternally verified answer. not did or members. Vancity and engaged institution) financial primary their is Vancity us tell who members (those primary acquisitions). and mergers through time. over comparability ensure time. over data of comparability the affect will This Report. Annual the in inclusion for data collect to time adequate allow to 2008 October-September to 2007 2008. February in merged we whom with Union, Credit Savings community. the to allocated is cent per 40 cent, per 30 the Of community. the and members with shared 2 to e factor

Produced by Vancity Public Affairs & Corporate Communications • Designed by Karyo Edelman † Where 2008 targets were set, these are shown. “-“ indicates no targets were set. were targets no “-“ indicates shown. are these set, were targets 2008 † Where subsidiaries/affiliates. its and Union Credit the comprises Group Vancity * The summary ofourperformance 2006-2008 CO

earnings consolidated pre-tax 3years’ previous average %of donations: Corporate dollars) of (billions score loyalty Member Total assets Efficiency ratio Efficiency

Produced by Vancity Public Affairs & Corporate Communications • Designed by Karyo Edelman “Amid change and uncertainty, we’re remaining true to our roots. We are Main Street, not Wall Street – independent and local, member-owned and based on co-operative principles. “In short, we are our members.” excerpt from the message from the CEO and Chair 2008 Annual Report, Vancity “They give me all the financial services I need, and they support the community – I don’t understand why everyone isn’t a member of Vancity.”

Mary Johnston CEO watermatters® member since 2004

2 Tracy with daughter Arielle, member since 2006 Johnathan, member since 2006 Janina, member since 1992

Walter, member since 1995 Reginald, member since 1978 Rita, employee since 1999

Demetrio, member since 1999 Fred, member since 1996 Matt, member since 2005 Danielle, member since 1999 Steve, member since 2006 Edwin, member since 1999

Brian, member since 1979 Leonora with granddaughter Chloe , member since 1985 Vijay, member since 1983

Ryan, employee since 2002 Kennedy, member since 2006 Kuljit, member since 1979 Vancity Annual Report 2008

“Vancity didn’t just give me financial backing, they taught me to be financially successful.”

Josh Booy Future Foundations Program member since 2008

5 “I’ve been with Vancity since 1993 and never felt the need to go anywhere else. Great customer service. I highly recommend Vancity to friends.”

Deepak Bhardwaj member since 1993 6 Sarwan, member since 2001 Charles with son Patrick, member since 2003 Stephen, member since 1985

Geoff, member since 2008 Gurpal, member since 1994 Cynthia, member since 1987

Serena, employee since 2004 Bing, member since 1998 Ayaz, employee since 2005 “Vancity is the type of organization that one can be proud to be associated with. It sets the bar very high in many areas: diversity, service and respect for its members, community involvement and support.”

Sondra Marshall member since 1975

8 “This isVancity one Annual Report 2008 financial institution that sees things the right way – from the member’s point of view.”

Alnawaz Ladha Executive Director Retire-at-Home Services™ member since 2008

9 Prem-Parkash, member since 1984 Patrick and Katherine, members since 1969 Harry, member since 2008

Sonia, employee since 1998 John, member since 1995 Tony, member since 1982

David, member since 2008 Balwant, member since 1982 Rani with daughter Sia, member since 1993 Vancity Annual Report 2008

“There are really good people working at Vancity; people who care about the jobs they do and about each other.”

Shirley Wong Centralized Compliance & Administration, Vancity staff member since 1998

11 message from the ceo and chair

the world has changed we enjoyed one of our best years ever for retail deposit This time last year, the financial services industry – growth while also building financial self-sufficiency; Vancity included – was responding to a credit crunch a percentage of all Jumpstart High Interest Savings triggered by the collapse of the sub-prime mortgage Account revenues go the Future Foundations Program, market in the United States. Twelve months on, a crisis which offers financial literacy education for low-income that seemed to focus on a single sector has spread individuals and families. And our investment areas and the threat of economic slowdown has become quietly bucked the industry trend, reporting net mutual a reality that touches all of us, fund sales at a time when many as well as our communities. mutual fund companies were reporting net redemptions. As we continue to navigate through market turmoil, it Our success belongs to has become crystal clear you, our member-owners. that being a local, member- Based on 2008 earnings, owned financial co-operative close to $15.3 million will is not only a differentiator, it’s be given to members fundamental to our success. and communities through Shared Success: an increase As the market changed, we of 68 per cent in member stuck to our co-operative distributions, and an 80 per banking model of member cent increase in contributions deposits funding member to community groups. loans, giving our retail members priority access As encouraging as these to credit. At the height of results are, they only tell uncertainty about the financial part of the story of 2008. sector, we reached out to Vancity’s success has never our members: in our branches, been measured exclusively on the phone, through in dollars and cents, but by a conference calls and our website – as well triple bottom line that includes environmental and as a phone-in television panel for Global TV. social performance as well. We’ve always seen this as a must-do rather than a nice-to-do. success amid uncertainty We received local and international recognition for The results speak for themselves. For 2008, environmental leadership. In addition to reaching consolidated earnings from operations for the our goal to be Carbon Neutral two years ahead of Vancity Group came in at $75.6 million, 49 per cent schedule, we set a world record for highest LEED higher than our 2007 results. Thanks to the success environmental sustainability with Dockside Green, of the Jumpstart™ High Interest Savings Account, our real estate co-development in Victoria, B.C.

12 Vancity Annual Report 2008

Our enviro Visa* credit cards helped community and communities. We can move beyond philanthropy groups tackling environmental issues. Non-profit to create a profound and lasting improvement in the groups received more than $300,000 in enviroFund™ lives of those we serve. grants – the program’s largest grant sum to date. Our new vision for the Vancity Group is redefining Our Shared Growth™ term deposit is just one example wealth. You’ll be hearing more about this throughout of our commitment to building the social economy. 2009 and beyond, but fundamentally it’s about Last year, we designated funds for investment in our creating a definition of wealth in which profit is local microfinance programs. not the end point, but the A portion of Shared Growth™ beginning; it’s a definition proceeds will now help micro- that includes social justice, entrepreneurs – including environmental sustainability new immigrants and refugees, and community well-being. people with disabilities, It’s about creating wealth that aboriginal people and makes the world a better place. residents of the Downtown All economic indicators point Eastside – overcome the to a taxing year ahead for our barriers they face when trying members and communities, to borrow money. and for our industry. We looking to the future continue to shape our organization so that we can One of our most significant be flexible and responsive to accomplishments for 2008 market conditions and to your is one that has set the stage needs, and to move us towards for our future: the creation of our vision. But amid change and a new vision for the Vancity uncertainty, we’re remaining Group. We’re building for true to our roots. We are tomorrow, even as we navigate Main Street, not Wall Street – through today. independent and local, member-owned and based on Vancity has a rich history of serving as a catalyst for co-operative principles. change. We’re proud of what we’ve achieved over In short, we are our members. the past 63 years, but we also know that there’s even more we can do to support our members

Tamara Vrooman Patrice Pratt * Visa Int./Vancity, Licensed User. Chief Executive Officer Chair, Vancity ™ Vancity enviroFund and enviroFund are registered trade marks of Vancouver City Savings Credit Union. Board of Directors ™ Jumpstart High Interest Savings Account is a trade mark of Vancouver City Savings Credit Union. ™ Shared Growth is a trademark of Vancouver City Savings Credit Union

13 2008 highlights

» For 2008, Vancity distributed approximately » Dockside Green, one of Vancity’s development $850,000 to not-for-profit, community projects in Victoria B.C., set a world record for the organizations across B.C. in the form of community highest LEED environmental sustainability rating for project grants. It is one part of the credit union’s a new construction project (July) and, along with community investment program, which is funded the City of Victoria, won a LiveSmart BC Green from a portion of Vancity’s annual profits and, Cities Partnership Award (September). In the same since 1994, has invested $46 million in grants to year, the first residents moved into Dockside Green. community organizations. » Readers of the Georgia Straight voted Vancity » Vancity merged with Greater Victoria Savings Best Environmentally Responsible Local Company, Credit Union (February). Best Local Employer, Best Place to Buy a Mortgage and Best Place to Buy RRSPs (September). » Vancity launched Perspectives Portfolio Solutions – the first all-in-one socially responsible investing » Vancity published its Accountability Report, (SRI) portfolio solution in Canada built entirely the outcome of a rigorous two-year accountability using environmental, social and governance reporting process that reports on the organization’s (ESG) criteria, while at the same time considering economic, environmental, and social performance financial performance (February). as framed by the Statement of Values and Commitments (October). » Citizens Bank hosted Citizens in Action, a day of volunteering that saw employees in Vancouver, » Inventure Solutions, Vancity’s IT subsidiary, Calgary, and Toronto build houses for Habitat for was recognized by the Gartner Group for Humanity and give blood to the Canadian Red environmental leadership (October). Cross (March). » Vancity developed a new vision: » Vancity was the first North American-based redefining wealth (October). financial institution to become Carbon Neutral – Vancity was awarded the first-ever Green Company two years ahead of schedule (April). » of the Year Award for Environmental Leadership at » ChangeEverything.ca, an online community website the Canadian Investment Awards (December). hosted by Vancity, was nominated for a coveted The WISH Wellness Centre – winner of the Webby Award (April). » 2003 Vancity Award – opened its doors to » Vancity was named to Canada’s Best Diversity survival sex trade workers on the Downtown Employers list for 2008 (April). Eastside (December).

14 Vancity Annual Report 2008

BOARD OF DIRECTORS (from top, left to right) Patrice Pratt, Chair Catherine McCreary, Vice Chair Lisa Barrett Doreen Braverman Elain Duvall Elizabeth Fletcher Ian Gill Kim Griffith Wendy Holm Virginia Weiler Bob Williams 15

Vancouver city Savings Credit Union consolidated financial highlights For the year ended December 31, (thousands of dollars) 2008 2007 2006 2005 2004 (restated - note 4) Assets Cash and Securities $ 1,799,675 $ 1,153,620 $ 1,105,139 $ 1,540,100 $ 1,714,446 Loans 12,255,961 12,583,832 10,888,592 9,984,474 8,535,816 Other Assets 476,097 369,075 287,356 231,745 203,503 Total Assets $ 14,531,733 $ 14,106,527 $ 12, 281,087 $ 11,756,319 $ 10,453,765 Liabilities and Members’ Equity Deposits and Equity Shares $ 11,786, 1 3 1 $ 11,208,389 $ 10,22 1,195 $ 10,558, 1 55 $ 8,950,835 Wholesale Borrowings 1,691,087 1,909,547 1,1 76,856 458,419 813,768 Other Liabilities 401,557 409,230 346,1 23 248,1 32 248,861 Retained Earnings 652,958 579,36 1 536,913 491,613 440,301 Total Liabilities and Members’ Equity $ 14,531,733 $ 14, 106,527 $ 12,281,087 $ 11,756,319 $ 10,453,765 Statement of Earnings Net Interest Income $ 331,607 $ 280,868 $ 279,432 $ 272,856 $ 255,076 Provision for Credit Losses (27,108) (16,323) (1 1 ,208) (7,525) (9,968) Other Income 92,747 84,583 89,21 1 75,823 68,039 Net Interest and Other Income 397,246 349,1 28 357,435 341,154 313,147 Salaries and Employee Benefits 187,037 173,746 160,876 146,982 133,330 Other Operating Expenses 134,653 124,760 124,569 115,77 1 105,062 321,690 298,506 285,445 262,753 238,392 Earnings from Operations 75,556 50,622 71,990 78,401 74,755 Unusual Item - - - 1,359 18,848 Earnings after Unusual Item 75,556 50,622 71,990 79,760 93,603 Distributions to Community and Members 16,977 10,822 15,805 16,626 19,578 Provision for Income Taxes 11,762 7,045 10,885 16,012 16,838 Net Earnings $ 46,817 $ 32,755 $ 45,300 $ 47, 1 22 $ 57,187 Statistics Average Assets (thousands of dollars) $ 14,194,884 $ 13,354,640 $ 11,768,550 $ 10,295,365 $ 9,081,023 Growth of Total Assets 3.0% 14.9% 4.5% 12.5% 15.8% Return on Average Assets 0.33% 0.25% 0.38% 0.46% 0.63% Return on Equity 7.2% 5.7% 8.4% 9.6% 13.0% Dividends per Equity Share 4.0% 1.8% 4.2% 4.5% 4.7% Dividends per Investment Share 5.2% 5.2% 5.1% 4.7% 4.7% Membership 407,1 2 1 387,762 354,663 337, 107 302,032 No. of Employees 2,564 2,408 2,385 2,340 2,050 No. of Branches 61 60 50 50 44

Membership Net Earnings Shared Success Distributions to (in thousands) (millions of dollars) Members and Community (millions of dollars)

388 407 57.2 355 337 47.1 45.3 46.8 17.9 302 14.9 15.3 13.9 32.8 8.9

2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 excludes investment share dividends

16 Vancity Annual Report 2008 financial review

This section of the Annual Report provides management’s overview of financial performance Vancity’s financial condition and results of operations. This information In 2008, Vancity’s consolidated earnings from operations increased enables the reader to be aware of significant changes in financial condition by 49.3% ($24.9 million) to $75.6 million as compared to $50.6 million and operations for the year ended December 31, 2008 compared to the in 2007. Revenues, comprising net interest income and other income, previous year, and is intended to summarize the information presented in increased 16% ($58.9 million) to $424.4 million from $365.5 million in 2007 the audited financial statements. Our discussion refers to the tables and mainly as a result of securitization and mark-to-market of derivatives. financial statements presented later in this section. Other income (excluding impairment of securities) for 2008 increased overview 5.1% ($5 million) to $103.5 million as compared to $98.5 million in 2007. Increases in the volumes of non-interest based services, including Visa Vancity is Canada’s largest credit union with $14.5 billion in assets, more cards, foreign exchange transactions and insurance, also contributed to than 407,000 members and 61 branches throughout Greater Vancouver, other income growth in 2008. the Fraser Valley, Squamish and Victoria. The Vancity Group comprises the Credit Union and its subsidiaries, all of which are wholly owned Consolidated net earnings for Vancity increased 42.9% ($14.1 million) to except for Inhance Investment Management Inc., of which 97.5% is $46.8 million from $32.8 million in 2007. The increase in consolidated owned by the Credit Union. The wholly owned active subsidiaries net earnings from 2007 was reduced by a further write-down of asset- include Citizens Bank of Canada and Citizens Trust Company, which backed commercial paper (“ABCP”) of $10.7 million during the year serve members across the country by telephone, ATM and the Internet. (2007: $13.9 million). The 2008 net earnings are after distributions Other wholly owned active subsidiaries include Inventure Solutions Inc., (excluding investment share dividends) to community and members Vancity Capital Corporation, Vancity Enterprises Ltd., Vancity Insurance of $15.3 million. In total, distributions to community and members Services Ltd., SCU Insurance Services Ltd., Squamish Insurance Agencies (excluding investment share dividends) were 32.7% of net earnings, Ltd., and Vancity Investment Management Ltd. Vancity also consolidates demonstrating Vancity’s ongoing commitment to share its success. variable interest entities (VIEs) when it is the primary beneficiary of the Return on equity for 2008 was 7.2% while return on average assets VIEs. Dockside Green Limited Partnership and Dockside Green Energy came in at 33 basis points (2007: 5.7% and 25 basis points respectively). Limited Partnership qualify as VIEs and are fully consolidated in the Vancity’s growth was assisted by strong British Columbia employment results for Vancity. The Credit Union and its subsidiaries are collectively levels coupled with continued high levels of infrastructure spending referred to as “Vancity.” Unless otherwise specified, all information is related to preparations for the 2010 Winter Olympic Games. Core consolidated data of Vancity and its subsidiaries. inflation in Canada stayed steady during 2008, which allowed the Bank of Canada to reduce interest rates over the course of 2008 and, in turn, helped to maintain a buoyant housing sector for the first nine months in British Columbia. Liquidity and credit concerns arose in the latter part

Net Interest and Other Income Total Assets Under Administration (millions of dollars) (billions of dollars) 424 $ 18.0 2.1 2.0 365 1.8 357 15.0 1.4 0.8 1.3 341 1.0 313 12.0 0.5 0.7 0.6 9.0 6.0 10.5 11.8 12.3 14.1 14.5 3.0 0.0 2004 2005 2006 2007 2008

2004 2005 2006 2007 2008 Total Assets Securitized Loans Assets Under Administration

17 of the year due to the continued stresses in the US economic situation the first nine months of 2008, driving up volumes on consumer-related amid the housing market slowdown and credit issues spreading up to financing and residential mortgages. The information in Table 1 provides Canada. Loan loss provisions for 2008 increased $10.8 million from 2007 more details on the net interest income components. due to an increase in non-performing loans in Q4 2008 caused by the Gross interest income and gross interest expense grew at 11.6% and current economic crisis. Net membership grew by more than 19,300 7.5%, respectively. The higher growth in our interest income percentage in 2008 with almost 4,600 new members arising from our merger with relative to interest expense reflects the change in mix and volumes due Greater Victoria Savings Credit Union. to increased securitization and swap income. Interest income is sensitive During 2008, Vancity’s consolidated assets grew by 3.0% ($425.2 million) to changes in mix and volumes of assets and liabilities and to changes to a total of $14.5 billion from $14.1 billion in 2007. This increase arose in interest rates. Table 2 provides an analysis of these factors for 2008 primarily from growth in interest bearing securities with financial and 2007 relative to the preceding year. From this table, the impact of institutions and securities funded through demand deposits partially declining lending interest rates can be seen by the decrease in average offset by mortgage sales. Consolidated deposits of $11.8 billion at the rate of interest income while the competition for deposits can be seen end of 2008 reflect an increase of $577.7 million or 5.2%. Consolidated by the increase in average rates of interest expense. loans (after mortgage sales for liquidity and capital management) of The 2008 provision for credit losses increased to $27.1 million from $12.3 billion have decreased by $312.5 million or 2.5%. Assets under $16.3 million in 2007. Note 7 to the Financial Statements indicates that administration of $2.0 billion have decreased by $135 million or 6%. the provision related to normal credit factors has significantly increased These assets are beneficially owned by clients and are, therefore, not due to increases in delinquency caused by the current economic crisis. reported on the consolidated balance sheet. The lending and credit risk factors that have a direct bearing on the Key earnings and financial position measures are presented in the five- provision for credit losses are discussed in the balance sheet section below. year summary of consolidated financial highlights on page 16. Other Income (expense) changes in accounting policies Other income continues to grow at Vancity as the consolidated group provides an increasing array of financial services to our members. Total Vancity’s significant accounting policies are set out in Note 2 to the other income grew by $8.2 million or 9.7% for the year. The largest growth financial statements. Note 3 provides a description of the changes in areas were credit card fees, foreign currency income and insurance services accounting policies implemented in 2008 in response to new accounting fees. Our Visa card base continues to grow along with purchase volumes, standards issued by the Canadian Institute of Chartered Accountants. while the increase in foreign currency transactions and insurance service fees generate steady fee income. statement of earnings Vancity holds two categories of impaired ABCP investments: Net Interest Income $52.6 million of third-party non-bank sponsored ABCP with a face Net interest income is interest and investment income earned on assets value of $76.4 million; and bank-sponsored ABCP of $2.2 million with a less interest expense incurred on deposits and other liabilities. face value of $3.0 million. During 2008, $10.7 million (2007 - $13.9 million) In 2008, Vancity’s net interest income increased 18.1% ($50.7 million) of impairment charges were recorded in other income (expense). to $331.6 million (2007 - $280.9 million). Interest income increased 11.6% ($84.4 million) to $814.0 million (2007 - $729.6 million). Interest income on loans and cash and securities decreased $2.2 million from 2007, however Other Income total interest income increased as a result of securitization income (millions of dollars) and other interest income (primarily relating to the mark-to-market of Other $5.3 derivatives) increased $33.2 million and $53.3 million respectively from 2007. Loan insurance $6.6 Interest expense for 2008 increased 7.5% ($33.6 million) to $482.4 million Account service fees Trust and investment fees $23.3 (2007 - $448.8 million). Interest paid on wholesale borrowings decreased $15.1 $6.2 million from 2007 while other interest expense (primarily from derivative losses) increased $38.6 million. Loan fees $2.6 $26.6 $10.9 Credit card fees Net interest income showed an increase of $50.7 million or 18.1% over Insurance fees the previous year compared to last year’s increase of $1.4 million or 0.5%. $13.1 Although interest rates gradually declined during the year, they were still Foreign exchange reasonable by historical standards. Coupled with the high employment levels, the consumer spending and housing markets were strong for Note: Other income above excludes the impairment charge included in other income on the income statement

18 Vancity Annual Report 2008

Operating Expenses balance sheet Total operating expenses increased by 7.8% or $23.2 million compared Lending and Credit Risk to 2007. The increased operating costs in 2008 were less than the Total loan volumes decreased by 2.6% in 2008. The decrease was revenue growth, resulting in an efficiency ratio of 81.0% compared mainly driven by a decline in residential mortgages retained of 11.6% to 85.5% for the prior year. Much of the increased expenses were offset by increases in consumer loans of 13.9%, business loans of 7.0%, related to restructuring costs, and salaries and benefits. and commercial mortgages of 6.2%. The growth in consumer and Details of operating expenses are in Table 3, which shows that salary business loans and commercial mortgages reflect Vancity’s objective and employee benefits costs increased by $13.3 million, occupancy and of diversifying revenue by relying increasingly on other lines of business, equipment increased by $1.5 million and general operating expenses while the decline in residential mortgages reflects the increased increased by $8.4 million. Salaries and employee benefits grew due to securitization volume undertaken in 2008 to increase liquidity. increased staff, pension, regular salary increases, and restructuring costs. Loan losses due to normal credit factors increased from last year Occupancy and equipment grew primarily due to increased rent relating with loans written off totaling $13.5 million (2007: $10.7 million). In total, to our expanded branch network. General operating expenses increased Vancity’s allowance for impairment consists of $8.4 million of specific mainly due to increases in Central 1 Credit Union dues and insurance, allowances and $78.9 million of general allowances. Total impaired member services, professional services and volume-related Visa card loans, as defined in Note 2(f)(i) are $59.2 million at the end of 2008, expenses, offset by declines in advertising and promotion, capital tax an increase of $27.9 million from 2007. The total of the specific and and computer expenses. general allowances provides adequately for future credit losses inherent Income and Other Taxes in the loan portfolio from impaired loans as well as general economic Vancity pays a variety of federal, provincial and municipal taxes. and business conditions. The level of allowance is consistent with the The major taxes payable are reported in Table 4, which shows the growth in the total loan portfolio. overall level of taxes increased relative to the prior year. The majority Liabilities of the increase was caused by higher income taxes in 2008 due to higher Consolidated deposits increased by 5.2% in 2008. Member preference earnings for the year. Further information regarding corporate income continues to be in demand and cashable term products, which provide taxes is provided in Note 15 to the financial statements. added flexibility. Vancity benefits from the investment grade short-term Distributions to Community and Members debt rating received from Dominion Bond Rating Service (DBRS) beginning Distributions to community and members increased to $17.0 million in 2005. This rating validates our financial sustainability, strengthens our in 2008 from $10.8 million in 2007, consistent with the higher net industry position and allows us to be an eligible investment partner for earnings. Note 13 to the financial statements show distributions by major institutional or corporate investors. The rating of R-1 (low) – satisfactory categories. Membership share dividends of $4.9 million represent a 4.0% credit quality also allows Vancity to issue commercial paper (short-term dividend payment while patronage rebates of $3.8 million consist of a debt), which is categorized on the consolidated balance sheet as bearer bonus on deposit interest paid by Vancity, a rebate on loan interest paid deposit notes. In 2008, despite the ABCP market disruption, the DBRS by members, and a dividend based on investments held by members rating for Vancity’s short-term debt was confirmed at R-1 (low) consistent with Credential Group and a rebate on various home insurance products with our continued financial stability. purchased through Vancity. Employee Loans Outstanding loans to employees of Vancity amounted to $301 million at year end (2007: $296 million) as shown in Note 22. This note also outlines the loan terms, which range from normal market rates to low- rate employee loans that form part of the compensation to employees of Vancity.

19 capital management asset liability management Capital requirements are set by financial institution regulatory bodies Assets, liabilities and off balance sheet financial instruments mature and are defined by a risk-adjusted capital ratio. The ratio compares the or re-price at various times, largely due to members’ differing term Credit Union’s capital to its risk-weighted assets, which are calculated preferences. This is commonly referred to as the mismatch or gap by applying specified weighting factors to balance sheet assets and and gives rise to interest rate risk exposure. Analysis of this interest off balance sheet items. The major components of Vancity’s capital rate sensitivity is necessary so that Vancity can manage its sensitivity are detailed in Note 14. Vancity management has a more stringent to changing interest rates within established risk limits. Financial target for capital that is higher than the eight per cent regulatory instruments such as derivatives are used to manage interest rate risk capital requirement. Both the regulatory and management targets exposure, as well as to provide member products, such as stock market were exceeded in 2008. The capital ratio was higher than the prior year index-linked deposits. Vancity manages its interest rate exposure at 12.3% (2007 – 12.1%) due to the growth of capital outpacing growth and use of derivatives through defined policies set by the Board of in risk-weighted assets. The 2008 capital requirement was achieved Directors. These policies are in turn managed by an asset liability primarily through retained earnings growth and the contributed surplus management committee. In 2008, Vancity maintained a relatively stable resulting from business combinations. interest rate risk profile that is well within its policy limits. Note 17 to the financial statements analyzes the balance sheet by the earlier of re-pricing or maturity dates while Note 18 summarizes the derivative financial instruments by notional amount, maturity and fair market value. When a derivative contract has a positive fair market value, the counterparty has a liability to Vancity, which creates credit risk. Vancity manages this credit risk by dealing with credit worthy counterparties that are reviewed regularly.

20 Vancity Annual Report 2008

TABLE 1 Net interest income (thousands of dollars) 2008 2007 2006 2005 2004 Interest Income Residential mortgages $ 327,940 $ 348,510 $ 313,091 $ 266,210 $ 252,034 Commercial mortgages 80,705 66,87 1 53,1 77 42,104 50,381 Other loans 265,247 255,033 212,298 163, 41 1 125,064 Cash and securities 42,423 48,100 36,5 1 1 29, 21 1 24,769 Other interest income 97,681 11, 1 35 1 7, 1 8 1 16,838 14,244 813,996 729,649 632,258 517,774 466,492 Interest Expense Chequing / savings accounts 23,494 28,755 24,678 13,092 9,677 Other demand accounts 16,402 5,2 1 1 3,70 1 2, 1 1 0 1,328 Term deposits 269,835 277,343 219,236 148,536 123,592 Retirement plans 68,939 66,216 60,279 53,753 57,824 Wholesale borrowings 62,494 68,665 42,606 22,423 16,314 Other interest costs 41,225 2,59 1 2,326 5,004 2,681 482,389 448,78 1 352,826 244,918 211,416 Net interest income $ 331,607 $ 280,868 $ 279,432 $ 272,856 $ 255,076

TABLE 2 Analysis of changes in net interest income (thousands of dollars) 2008 vs 2007 2007 vs 2006 Increase (decrease) due to changes in Increase (decrease) due to changes in Average Average Net Average Average Net volume rate change volume rate change Assets Residential mortgages $ (3,863) $ (16,707) $ (20,570) $ 12,580 $ 22,1 09 $ 34,689 Commercial mortgages 24, 1 29 (10,295) 13,834 12,740 954 13,694 Other loans 73,983 (63,769) 10,214 36,888 6,529 43,417 Cash and securities 9,262 (14,939) (5,677) 3,280 8,310 11,590 Total interest income $ 103,5 1 1 $ (105,710) $ (2,199) $ 65,488 $ 37,902 $ $103,390 Liabilities Demand deposits (9,597) 3,667 (5,930) 4,160 4,639 8,799 Term deposits (28,284) 35,792 7,508 22,257 32,637 54,894 Retirement plans (4,274) 1,55 1 (2,723) 1,832 4,1 05 5,937 Debentures and loans (25,1 29) 31,300 6, 1 7 1 22,47 1 3,589 26,060 Total interest expense (67,284) 72,310 5,026 50,720 44,970 95,690 $ 36,227 $ (33,400) 2,827 $ 14,768 $ (7,068) 7,700 Other interest income (costs) 47,912 (11,599) Change in net interest income $ 50,739 $ (3,899)

21 TABLE 3 Operating expenses (thousands of dollars) 2008 2007 2006 2005 2004

Salary and employee benefits Salaries and wages $ 151,976 $ 142,415 $ 132,978 $ 121,720 $ 110,569 Benefits and training 35,06 1 31,331 27,898 25,262 22,76 1 187,037 173,746 160,876 146,982 133,330

Occupancy and equipment Rent 15,460 14,1 27 11,923 11,296 10,1 37 Equipment 1,575 1,510 1,250 1,508 1,292 Maintenance and security 4,24 1 4,085 3,783 3,859 3,54 1 Amortization 12,324 12,338 11,725 11,988 15,734 33,600 32,060 28,681 28,651 30,704

General operating B.C. Corporation Capital Tax 6,370 7,712 7,187 6,55 1 5,963 Advertising and promotion 10,962 13,159 13,092 14,415 12,342 Computer 5,91 1 6,536 6,082 6,366 5,802 Central dues and insurance 9,93 1 6,920 8,382 210 3,452 Meetings and travel 1,987 2,173 2,258 1,739 1,75 1 Postage 4,143 3,793 3,056 2,523 2,426 Professional services 13,300 12,537 9,934 11,702 6,894 Stationery 2,198 2,45 1 2,407 2,249 2, 1 0 1 Telecommunications 3,896 3,881 3,977 3,669 3, 315 Member services 15, 1 1 3 13,593 18,255 19,054 15, 1 76 Credit card services 17,033 15,192 13,02 1 10,02 1 8,337 Other 10,209 4,753 8,237 8,621 6,799 101,053 92,700 95,888 87,120 74,358 Total operating expenses $ 321,690 $ 298,506 $ 285,445 $ 262,753 $ 238,392

TABLE 4 Income and other taxes (thousands of dollars) 2008 2007 2006 2005 2004 Income taxes $ 11,762 $ 6,136 $ 10,885 $ 16,012 $ 16,838 B.C. Corporation Capital Tax 6,370 7,712 7,187 6,55 1 5,963 Payroll taxes 7,119 6,691 6,282 5,763 5,284 Property taxes 3,077 2,842 2,287 1,976 1,85 1 Federal and provincial sales taxes 9,445 7,505 6,772 7,782 6,612 Total income and other taxes $ 37,773 $ 30,886 $ 33,413 $ 38,084 $ 36,548

22 Vancity Annual Report 2008

Auditors’ Report to the Members Management’s Responsibility for Financial Reporting

We have audited the consolidated balance sheet of Vancouver City These consolidated financial statements were prepared by the Savings Credit Union as at December 31, 2008 and the consolidated management of Vancity who are responsible for their accuracy, statements of earnings, comprehensive income, changes in members’ completeness and integrity. They were developed in accordance equity, and cash flows for the year then ended. These financial with the requirements of the Financial Institutions Act of British statements are the responsibility of Vancouver City Savings Credit Columbia and conform in all material respects with the Canadian Union’s management. Our responsibility is to express an opinion on generally accepted accounting principles. these consolidated financial statements based on our audit. Systems of internal control and reporting procedures are designed We conducted our audit in accordance with Canadian generally to provide reasonable assurance that the financial records are accepted auditing standards. Those standards require that we plan complete and accurate so as to safeguard the assets of the Credit and perform an audit to obtain reasonable assurance whether Union. These systems include establishment and communication the financial statements are free of material misstatement. An of standards of business conduct throughout all levels of the audit includes examining, on a test basis, evidence supporting the organization to provide assurance that all transactions are amounts and disclosures in the financial statements. An audit also authorized and proper records are maintained. Internal audit includes assessing the accounting principles used and significant provides management with the ability to assess the adequacy of estimates made by management, as well as evaluating the overall these controls. Further, they are reviewed by the Credit Union’s financial statement presentation. external auditors.

In our opinion, these consolidated financial statements present The Board of Directors has approved the consolidated financial fairly, in all material respects, the financial position of Vancouver statements. The Audit Committee of the Board, comprising City Savings Credit Union as at December 31, 2008, and the results four directors who are not officers or employees of Vancity, has of its operations and its cash flows for the year then ended in reviewed the statements with the external auditors, in detail, and accordance with Canadian generally accepted accounting principles. received regular reports on internal control findings. KPMG, the external auditors appointed by the membership, have examined the The comparative figures as at and for the year ended December 31, consolidated financial statements of the Credit Union in accordance 2007 were reported on by another firm of chartered accountants, with Canadian general accepted auditing standards. They have had full except for the adjustments related to derivatives as described in and free access to the internal audit staff, other management staff, Note 4 to the financial statements. and the Audit Committee of the Board. Their report appears herein.

Tamara Vrooman Rob Malli Chartered Accountants Chief Executive Officer Vice President, Finance Vancouver, Canada February 6, 2009 February 6, 2009

23 Vancouver city Savings Credit Union Consolidated Balance Sheet December 31, 2008, with comparative figures for 2007

(Expressed in thousands of dollars) 2008 2007 (restated - note 4) ASSETS Cash and securities: Cash and non-interest bearing deposits with financial institutions $ 148,478 $ 148,677 Interest bearing deposits with financial institutions 958,357 732,575 Government and corporate securities (note 6) 692,840 272,368 1,799,675 1,153,620 Loans: (note 7) Residential mortgages 6,444,788 7,293,033 Commercial mortgages 1,575,1 35 1,482,525 Consumer loans 2,849,852 2,502,615 Business loans 1,473,524 1,377,628 Allowance for credit losses (87,338) (71,969) 12,255,96 1 12,583,832 Other: Accrued interest receivable 40,145 53,010 Derivative instruments (note 18) 96,788 16,382 Premises and equipment (note 9) 87,592 71,050 Other assets (note 10) 251,572 228,633 476,097 369,075 $ 14,531,733 $ 14,106,527 LIABILITIES AND MEMBERS’ EQUITY Deposits: Demand $ 3,085,790 $ 2,408,599 Term 8,599,50 1 8,695,207 Shares (note 11) 100,840 104,583 11,786,1 31 11,208,389 Wholesale borrowings: Demand loans and banker’s acceptances 1,415,481 1,256,115 Bearer deposit notes 275,606 653,432 1,69 1,087 1,909,547 Other liabilities: Accrued interest and dividends payable 159,333 170,914 Accounts payable and other accrued liabilities 205,088 219,706 Derivative instruments (note 18) 37, 1 36 18,610 401,557 409,230 MEMBERS’ EQUITY: Contributed surplus 29,275 22,470 Retained earnings 602,765 555,948 Accumulated other comprehensive income 20,918 943 652,958 579,36 1 COMMITMENTS AND CONTINGENCIES (note 21) $ 14,53 1,733 $ 14,106,527

Approved on behalf of the Board:

Director Director See accompanying notes to consolidated financial statements.

24 Vancity Annual Report 2008

Vancouver city Savings Credit Union Consolidated Statement of Earnings Year ended December 31, 2008, with comparative figures for 2007

(Expressed in thousands of dollars) 2008 2007 (restated - note 4) INTEREST INCOME: Loans $ 673,892 $ 670,414 Cash and securities 42,423 48,100 Securitization 36,93 1 3,702 Other (note 18) 60,750 7,433 813,996 729,649 INTEREST EXPENSE: Deposits 378,670 377,525 Wholesale borrowings 62,494 68,665 Other (note 18) 41,225 2,591 482,389 448,781 NET INTEREST INCOME 331,607 280,868

PROVISION FOR CREDIT LOSSES (note 7) 27, 1 08 16,323 304,499 264,545 OTHER INCOME: Account service fees 23,277 22,470 Credit card fees 26,560 22,140 Foreign exchange 13,098 10,666 Insurance service fees 10,933 9,362 Loan fees 2,578 2,212 Trust and investment fees 15,106 15,356 Loan insurance fees 6,589 6,338 Impairment of securities (note 6) (10,741) (13,897) Other 5,347 9,936 92,747 84,583 NET INTEREST AND OTHER INCOME 397,246 349, 1 28 OPERATING EXPENSES: Salaries and employee benefits 187,037 173,746 Occupancy and equipment 33,600 32,060 General operating 101,053 92,700 321,690 298,506 EARNINGS FROM OPERATIONS 75,556 50,622

Distributions to community and members (note 13) 16,977 10,822 Earnings before income taxes 58,579 39,800

Provision for income taxes (note 15) 11,762 7,045 Net earnings $ 46,817 $ 32,755

See accompanying notes to consolidated financial statements.

25 Vancouver city Savings Credit Union Consolidated Statement of Comprehensive Income Year ended December 31, 2008, with comparative figures for 2007

(Expressed in thousands of dollars) 2008 2007 (restated - note 4) Net earnings $ 46,817 $ 32,755 Other comprehensive income, net of tax: Net change in cash flow hedges: Net unrealized gains on derivatives designated as cash flow hedges, net of tax of $5,823 18,896 - Transfer of net realized gains on cash flow hedges to earnings, net of tax of $(29) (93) - 18,803 - Net change in available for sale securities: Net unrealized gain (losses) on available for sale securities, net of tax of $652 (2007 - $(4,154)) 2,409 (8,873) Transfer of net realized loss on available for sale securities to earnings, net of tax of $(457) (2007 - $4,430) (1,237) 9,467 1,172 594 Total other comprehensive income 19,975 594 Comprehensive income $ 66,792 $ 33,349

See accompanying notes to consolidated financial statements.

26 Vancity Annual Report 2008

Vancouver city Savings Credit Union Consolidated Statement of Changes in Members’ Equity December 31, 2008, with comparative figures for 2007

(Expressed in thousands of dollars) 2008 2007 (restated - note 4) Contributed surplus: Balance, beginning of year $ 22,470 $ 4,190 Net assets acquired (note 12) 6,805 18,280 Balance, end of year 29,275 22,470 Retained earnings: Balance, beginning of year 555,948 532,723 Adjustment for change in accounting policies, net of tax of $(2,204) ‑ (9,530) Net earnings 46,817 32,755 Balance, end of year 602,765 555,948 Accumulated other comprehensive income: Balance, beginning of year 943 - Adjustment for change in accounting policies, net of tax of $19 ‑ 349 Other comprehensive income 19,975 594 Balance, end of year 20,918 943 Members’ equity, end of year $ 652,958 $ 579,361

See accompanying notes to consolidated financial statements.

27 Vancouver city Savings Credit Union Consolidated Statement of Cash Flows Year ended December 31, 2008, with comparative figures for 2007

(Expressed in thousands of dollars) 2008 2007 (restated - note 4) Cash provided by (used in): Operations: Net earnings $ 46,817 $ 32,755 Provision for credit losses 27, 1 08 16,323 Amortization of premises and equipment 12,053 12,339 Write-down on available for sale securities 10,741 13,897 Net change in derivative financial instruments (61,880) (916) Changes in operating assets and liabilities: Future income tax assets (10,602) 248 Accrued interest receivable 12,865 (7,975) Other assets (16,932) (26,140) Accrued interest and dividends payable (11,58 1) 12,482 Accounts payable and other accrued liabilities (14,618) 20,374 Other 19,975 594 13,946 73,98 1 Financing: Demand and term deposits 581,485 983,329 Shares (3,743) 3,865 Loans payable (218,460) 732,69 1 Sales and securitizations (note 8) 841,632 362,449 1,200,914 2,082,334 Investments: Interest bearing deposits with financial institutions (225,782) (106,907) Government and corporate securities (431,213) 35,513 Loans, net of repayments (540,869) (2,057,615) Premises and equipment (28,595) (20,05 1) Other assets 4,595 (37,644) Non-cash net assets acquired from business combinations (note 12) (2,812) (21,387) Cash and cash equivalents acquired from business combinations (note 12) 9,617 41,667 (1,215,059) (2,166,424) Decrease in cash and cash equivalents (199) (10,109) Cash and cash equivalents, beginning of year 148,677 158,786 Cash and cash equivalents, end of year $ 148,478 $ 148,677 Supplementary information: Interest paid $ 451,350 $ 426,275 Income taxes paid 13,908 12,371

See accompanying notes to consolidated financial statements.

28 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

1. Governing legislation and operations (b) Cash resources Vancouver City Savings Credit Union (Vancity) is incorporated Cash and non-interest bearing deposits with financial institutions under the Credit Union Incorporation Act of British Columbia and are comprised of cash, demand deposits with Central 1 Credit its operations are subject to the Financial Institutions Act of British Union (Central 1) and cheques and other items in transit. These Columbia. Vancity serves members principally in the Lower Mainland are considered cash and cash equivalents for the purpose of the of British Columbia and Victoria. Citizens Bank of Canada (the Bank), consolidated statement of cash flows. the principal subsidiary of Vancity, is federally incorporated and (c) Interest bearing deposits held with financial institutions its operations are regulated by the Office of the Superintendent Deposits held for liquidity purposes with Central 1 and other of Financial Institutions (OSFI). The Bank serves customers across financial institutions are recorded at amortized cost using the Canada with its main operations in British Columbia and Ontario. effective interest method. Vancity is an integrated financial institution that provides a wide range of financial products and services that comprise one business (d) Financial instruments operating segment. (i) Recognition and measurement All financial instruments are classified as one of the following: 2. Significant accounting policies held for trading (HFT), available for sale (AFS), held to maturity These consolidated financial statements have been prepared in (HTM), loans and receivables (L&R) or other financial liability accordance with Canadian generally accepted accounting principles. (OFL) and are recognized at fair value on initial recognition. Through the application of these principles, management is required All financial instruments are carried at fair value to make estimates and assumptions that affect the reported subsequent to initial recognition, unless they are classified amounts of assets and liabilities and disclosure of contingent as L&R, HTM or OFL, which are carried at amortized cost. assets and liabilities at the date of the financial statements and the Any financial asset or liability may be designated as AFS or HFT reported amounts of revenue and expenses during the reporting at initial recognition. In addition, all derivatives are measured period. Actual results may differ from those estimates. The Bank at fair value. When available from active markets, fair values must also adhere to accounting requirements of OSFI, which are based on quoted market prices. If prices from active conform in all material respects to Canadian generally accepted markets are not available, fair values are estimated using a accounting principles. The significant accounting policies used variety of valuation techniques and models. in these consolidated financial statements are as follows: The amortized cost of a financial instrument is the amount at which the financial instrument is measured upon (a) Principles of consolidation initial recognition, minus principal payments, plus or minus The consolidated financial statements include the assets, cumulative amortization of any difference between the liabilities and the results of operations and cash flows of Vancity initial amount recognized and the maturity amount, minus and its subsidiaries, all of which are wholly owned except for any reduction for impairment. Amortization is based on Inhance Investment Management Inc. Vancity owns 97.5% the effective interest method. (2007 - 96.6%) of Inhance Investment Management Inc. The wholly owned active subsidiaries are Citizens Bank of Canada, (ii) Classification of financial instruments Citizens Trust Company, Inventure Solutions Inc., Vancity Capital HFT financial instruments are acquired or incurred principally Corporation, Vancity Enterprises Ltd., Vancity Insurance Services for resale, generally within a short period of time. They are Ltd., SCU Insurance Services Ltd., Squamish Insurance Agencies measured at fair value at each balance sheet date. Gains and Ltd., and Vancity Investment Management Ltd. All intercompany losses realized on disposal and unrealized gains and losses transactions and balances have been eliminated. from market fluctuations are reported in earnings as other Vancity consolidates variable interest entities (VIEs) when it income. Interest earned and interest incurred are included is the primary beneficiary of the VIE. An entity is a VIE when, by in interest income and expense, respectively. Vancity has design, one or both of the following conditions exist: (a) the total classified cash and cash equivalents as HFT. equity investment at risk is insufficient to permit the entity to HTM financial assets are non-derivative financial assets finance its activities without additional subordinated support with fixed or determinable payments and a fixed maturity, from others; (b) as a group, the holders of the equity investment other than L&R, which an entity has the positive intention at risk lack certain essential characteristics of a controlling and ability to hold to maturity. These financial assets are financial interest. The primary beneficiary is the enterprise that accounted for at amortized cost. Vancity has not classified absorbs or receives the majority of the VIE’s expected losses and/ any financial assets as HTM. or expected residual returns. Dockside Green Limited Partnership AFS financial assets are non-derivative financial assets and Dockside Green Energy Limited Partnership qualify as VIEs that are not classified as L&R, HTM, HFT, are not designated and are fully consolidated in the results in Vancity. as HFT, or are designated as AFS. AFS assets are carried at fair

29 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

value whereby the unrealized gains and losses are included Interest income is recorded on an effective interest rate in accumulated other comprehensive income (AOCI) until method, except when a loan is considered to be impaired. sale, at which time the cumulative gain or loss is transferred Interest income on impaired loans is recognized on a cash basis to the consolidated statement of earnings. Write downs to only after recording any recovery of the specific provision for reflect other than temporary impairment are included in impairment or partial write-off, and provided that there is no other income. Income from these assets is included in interest further doubt as to the collectability of the principal amount. income using the effective interest method. (i) Impaired loans L&R are recorded at amortized cost using the effective A loan is classified as impaired when, in management’s interest rate method. All loans and receivables are classified opinion, there has been a deterioration in credit quality to as L&R by Vancity. the extent that there no longer is reasonable assurance of OFL are recorded at amortized cost using the timely collection of the full amount of principal and interest. effective interest rate method and include all liabilities, If a payment on a loan is contractually 90 days in arrears, other than derivatives. the loan will be classified as impaired, unless the loan is fully Vancity reviews AFS securities for possible impairment when secured, the collection of the debt is in process, and collection cash flows are not received from counterparties at their expected efforts are reasonably expected to result in repayment of the dates. An investment is considered impaired if the unrealized loan or in restoring it to a current status. Loans considered losses are considered to be other than temporary. uncollectable are written off. Impaired loans are carried at In determining whether a loss is temporary, factors considered their estimated realizable amounts, determined by discounting include the extent of the unrealized loss, the length of time that the expected future cash flows. When the amounts of future the security has been in an unrealized loss position, the financial cash flows cannot be estimated with reasonable reliability, condition of the issuer, and Vancity’s ability and intent to hold impaired loans are carried at the fair value of the underlying the investment for a period of time sufficient to allow for any security, net of estimated costs of realization. anticipated recovery. If the decline is considered to be other (ii) Allowance for credit losses than temporary, a write-down is recorded in the consolidated The allowance for credit losses is maintained at a level statement of earnings. considered adequate to absorb identified credit-related losses Interest income and expense presented on the consolidated in the portfolio as well as losses that may be incurred but are statement of earnings include: not yet specifically identified. Specific provisions include all the • interest on financial assets and liabilities at amortized cost accumulated provisions for losses on identified impaired loans on an effective interest basis; required to reduce the carrying value of those loans to their • interest on AFS securities on an effective interest basis; and estimated realizable amount. The general allowance for credit • the gain or loss relating to the effective portion of qualifying risk includes provisions for losses inherent in the portfolio that hedging derivatives designated as cash flow hedges released from are not presently identifiable by management of Vancity on AOCI as the hedged item is recorded in interest income (expense). an account-by-account basis. The general allowance for credit Transaction costs are incremental costs that are directly attributable risk is established by taking into consideration historical trends to the acquisition, issuance or disposal of a financial asset or liability. in the loss experience during economic cycles, the current Transaction costs related to HFT financial instruments are expensed portfolio profile, estimation of incurred losses for the current as incurred. For all other financial instruments, transaction costs are phase of the economic cycle and historical experience in capitalized and amortized over the expected life of the instrument the industry. using the effective interest method. Trade date accounting is used The balance in the allowance for credit losses account for all assets. is deducted from the related asset category. The amount of the provision for credit losses that is charged to the (e) Securities consolidated statement of earnings is the estimated net Vancity has designated government and corporate securities as credit loss experience for the year. The provision for the year AFS. AFS assets are generally held for liquidity and longer term establishes the amount needed in the allowance for credit investment purposes. losses account that management considers adequate to (f) Loans absorb all credit-related losses in its portfolio after charging Loans are initially measured at fair value. Subsequently, they are loans written off during the year, net of recoveries, to the measured at amortized cost, net of an allowance for credit losses, allowance for credit losses account. using the effective interest method.

30 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

(iii) Loan fees at the time of sale and are periodically re-evaluated with The accounting treatment for loan fees varies depending on changes in fair value flowing through other comprehensive the transaction. Fees that are considered to be adjustments income and other securitization income flowing through to loan yield are recognized using the effective interest net earnings. The carrying value of the retained interests is method. The effective interest method capitalizes fees and reviewed annually for impairment and adjusted as required. transaction costs on the consolidated balance sheet and Depending on the sale or securitization vehicle, Vancity amortizes them to interest income or expense over the will record a service liability for securitizations for which expected life of the related loan. Retail loan fees, except for adequate compensation for servicing the transferred loans is application fees, are recognized using the effective interest not received, and will record a servicing asset when servicing method as interest income over the duration of the loan revenue from the transferred loans is expected to exceed portfolio. Mortgage prepayment fees are recognized in other servicing cost. The servicing asset or liability is initially interest income when received, unless they relate to a minor measured at fair value and is recorded in the consolidated modification to the terms of the mortgage, in which case the balance sheet in other assets or other liabilities, respectively. fees are recognized over the expected remaining term Over the term of the transferred loans, the related servicing of the original mortgage using the effective interest method. asset or liability will be amortized to securitization income. Loan origination, restructuring and renegotiation fees for (g) Derivative instruments commercial and business loans are recorded as interest income Derivative instruments are financial contracts that require over the expected term of the loan using the effective interest or provide an option to exchange cash flows or payments method. Commitment fees are recorded to other income over determined by applying interest rates, exchange rates or other the expected term of the loan, unless the loan commitment financial indices to notional contract amounts. will not be used. Loan discharge, draw and administration Derivative instruments are carried at fair value and are fees are recorded directly to loan fee income when the loan reported as assets where they have a positive fair value, or as transaction is complete. Loan syndication fees are included liabilities where they have a negative fair value. The resulting in other interest income when the syndication is completed. gains or losses on derivative instruments not qualifying for hedge Loan fees that are recognized using the effective interest accounting are recognized in other interest income or expense method are included with loan balances on the consolidated as appropriate, in the current period. Derivatives may also be balance sheet. embedded in other financial instruments. Derivatives embedded (iv) Loan securitizations and sales in other financial instruments are separated from the host Vancity periodically sells loans to special-purpose entities contracts and accounted for as a derivative instrument when or other unrelated third parties. These transactions are their economic characteristics and risks are not closely related to accounted for as sales and the related loans are removed from those of the host contract, it meets the definition of a derivative the balance sheet when control over the loans is surrendered instrument and the host contract is not accounted for as HFT. and consideration other than beneficial interests in the Vancity applied this accounting treatment to all host contracts transferred loans is received in exchange. entered into after January 1, 2003. The index-linked component The fair values of loans sold and retained interests are on an equity-linked deposit is accounted for as an embedded determined using pricing models based on key assumptions derivative and is classified as a derivative instrument on the such as expected losses, prepayments and discount rates that consolidated balance sheet. are commensurate with the risks involved. Gains or losses on A derivative qualifies for hedge accounting if the hedging these transactions are recorded in other interest income or relationship is designated and formally documented at inception expense. Gains and losses on transactions that have a retained in accordance with the requirements of CICA handbook interest are based on the carrying value of the loans transferred section 3865 Hedges. This documentation involves outlining allocated between the assets sold and the retained interests in the particular risk management objective and strategy for the proportion to their fair value at the date of transfer. Gains and hedging relationship, the specific risk being hedged, and how losses on transactions that do not have a retained interest are effectiveness is assessed and measured as well as the frequency based on the proceeds of the sale compared with the carrying of these tests. Hedging relationships, between the hedged and value of the loans at the date of sale. hedging items, are designated as cash flow hedges. This process Vancity may retain interests in the transferred loans, such includes linking the derivatives to specific pools of assets and as servicing rights and cash reserve accounts. Vancity classifies liabilities on the balance sheet or to specific firm commitments its retained interests in securitizations as available for sale or anticipated transactions that give rise to the specific risk assets. These retained interests are recorded at their fair value being hedged. Effectiveness is assessed by determining whether

31 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

derivatives used in hedging relationships are effective in development is recorded at net realizable value. Intangible assets offsetting changes in fair values or in cash flows attributable to consist of ICBC licenses and customer lists. Intangible assets are the risk being hedged. Effectiveness testing is performed both at recorded at their fair value on acquisition and are subsequently inception and over the term of the hedging relationship on both carried at cost less permanent impairments. a prospective and retrospective basis. (k) Employee future benefits Vancity uses hedge accounting for cash flow hedges that Vancity accrues obligations under employee benefit plans. convert floating rate assets and liabilities to fixed rate assets or The cost of pensions and other retirement benefits earned liabilities. With a cash flow hedge, the effective portion of changes by employees is actuarially determined using the projected in fair value of the derivative is recognized in other comprehensive benefit method prorated on service and management’s best income (OCI), while the ineffective portion is recognized in the estimate of expected plan investment performance, salary consolidated statement of earnings. The amount recognized in escalation, retirement ages of employees, appropriate discount OCI is reclassified and included on the consolidated statement rates and expected health care costs. For the purpose of of earnings in the same period that the hedged cash flows affect calculating the expected return on plan assets, those assets income. Ineffectiveness is measured and recorded in other are valued at fair value. The accrued benefit asset or liability interest income or expense on the consolidated statement of represents the cumulative difference between the expense and earnings. When a cash flow hedge is discontinued and the hedged funding contributions and is included in other liabilities on the item is still in existence, amounts previously recognized in other consolidated balance sheet. comprehensive income are released to income as the hedged item impacts earnings. When a cash flow hedge is discontinued (l) Distributions to members and the hedged item is no longer in existence, amounts previously Patronage rebates and dividends are recorded as an expense recognized in OCI are immediately recognized in the consolidated when declared in the consolidated statement of earnings. statement of earnings. (m) Income taxes (h) Commissions Vancity follows the asset and liability method of accounting Commissions paid in connection with deposit taking and lending for income taxes. Future income tax assets and liabilities are activities are considered transaction costs. These commission computed based on differences between the carrying amount of expenses are adjustments to the yield of the loan or deposit assets or liabilities on the balance sheet and their corresponding and are recognized using the effective interest method as an tax values using the enacted or substantively enacted income interest expense for deposits and as a reduction to interest tax rates that are expected to apply when the asset is realized or revenue for a loan over the average term of the related portfolio. when the liability is settled. Future income tax assets also result Commission costs are included with loan or deposit balances on from the carry forward of unused tax losses and other deductions. the consolidated balance sheet. The valuation of future income tax assets is reviewed annually and adjusted, if necessary, to reflect the estimated realizable (i) Premises and equipment amount. Net future income tax assets or liabilities are reflected Land is carried at cost. Buildings, equipment and leasehold in other assets or other liabilities, as appropriate. improvements are recorded at cost, less accumulated amortization. Amortization is calculated using the straight-line method over the (n) Translation of foreign currencies estimated useful lives of the assets as indicated below: Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rates prevailing on Buildings 20 years the balance sheet date. Revenues and expenses denominated Leasehold improvements 10 years in foreign currencies are translated into Canadian dollars at Computer equipment and software 3-5 years average exchange rates for the year. Realized gains and losses are Furniture and equipment 3-5 years translated at the rates prevailing at the time of the transaction (j) Other assets and are recorded in other income on the statement of earnings. Investments in shares of Central 1 Credit Union are classified Unrealized gains and losses on foreign currency AFS assets as AFS, but are recorded at cost as there is no active market are translated at the average exchange rates for the year and where fair values can be reliably measured. Vancity capitalizes recorded in other comprehensive income. acquisition and direct development costs for property under (o) Comparative figures development relating to Dockside Green Limited Partnership. In addition to the restatement referred to in Note 4, certain When the estimated net realizable value of property under comparative figures are reclassified, where appropriate, to development does not exceed book value, the property under conform to the current year’s presentation.

32 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

3. Changes in accounting policies 4. Restatement (a) Current year changes During the year it was determined that, in respect of certain Financial instruments - presentation and disclosure derivative instruments to which hedge accounting had been applied, CICA Handbook Section 3862, Financial Instruments – Disclosures Vancity had not met the stringent requirements of Handbook (HB 3862), and Section 3863, Financial Instruments – Presentation Section 3865, Hedges (HB 3865) to permit its application. HB 3865 (HB 3863), issued in December 2006, revise the current standards was adopted and applied by Vancity on January 1, 2007. As such, on financial instrument disclosure and presentation. These Vancity was precluded from applying hedge accounting for certain standards enhance users’ ability to evaluate the significance of of its cash flow derivatives used to manage interest rate risk during financial instruments to an entity, related risk exposures and the 2007. Accordingly, Vancity’s consolidated financial statements for management of these risks by the entity. These standards were the year ended December 31, 2007 have been restated on the basis adopted by Vancity effective January 1, 2008. that hedge accounting not been applied for 2007 as follows: Capital disclosures Consolidated Statement of Earnings CICA Handbook Section 1535, Capital Disclosures, was issued Net earnings as originally reported $ 28,329 in December 2006. This section requires enhanced quantitative Increase in net interest income 5,335 disclosures about what is regarded as capital and disclosure Decrease in income taxes (909) of information with respect to the objectives, policies and Net earnings as restated $ 32,755 processes used to manage capital. These standards were adopted In addition, retained earnings decreased and accumulated by Vancity effective January 1, 2008. comprehensive income increased by $9,608,000 on the reversal (b) Future changes in accounting policies of transition adjustments originally made on January 1, 2007. Goodwill and intangible assets Effective January 1, 2009, Vancity will adopt the CICA Handbook 5. Nature and extent of risks arising from Section 3064, Goodwill and Intangible Assets. This section financial instruments establishes new standards for the recognition and measurement Risk management framework of intangible assets, but does not affect the accounting for Vancity’s principal business activities result in a balance sheet that goodwill. The impact of implementation of this standard will not consists primarily of financial instruments. In addition, Vancity uses be material to Vancity’s results of operations or financial position. derivative instruments for asset/liability management purposes. The principal financial risks that arise from transacting financial International Financial Reporting Standards (IFRS) instruments include credit, liquidity and funding, operational and In February 2008, the Canadian Accounting Standards Board market risk. (AcSB) confirmed that profit-oriented publicly accountable The Board of Directors has overall responsibility for the enterprises will be required to adopt IFRS. IFRS will replace establishment and oversight of Vancity’s risk management current Canadian GAAP for those enterprises. For Vancity, framework. The Board has established committees to oversee IFRS will be effective January 1, 2011, including the preparation and manage Vancity’s exposure to primary areas of risk arising and reporting of one year of comparative figures. Vancity is in from financial instruments: credit, market and liquidity. The the process of evaluating the impacts and implications for its Financial Policy (FPC), Audit, and Governance and Conduct conversion to IFRS. Review committees are responsible for developing, approving and Credit Risk and the Fair Value of Financial Assets and monitoring Vancity’s risk management policies and strategies in their Financial Liabilities specified areas. All committees have non-executive Board members On January 20, 2009, the CICA’s Emerging Issues Committee and report quarterly to the Board of Directors on their activities. (EIC) issued an abstract, EIC-173, Credit Risk and the Fair Value of Vancity’s risk management policies are established to identify Financial Assets and Financial Liabilities, clarifying the inclusion and analyze the risks faced by it, to set appropriate risk limits of credit risk in determining the fair value of financial assets, and controls, and to monitor risks and adherence to limits. Risk financial liabilities and derivatives. Application of EIC-173 is to management policies and systems are reviewed annually to reflect be applied retroactively without restatement of prior periods. changes in market conditions, products and services offered, and Vancity will be adopting this practice effective January 1, 2009. changes in portfolio performance and trends. The FPC’s role is to provide effective oversight of Vancity’s risk management activities related to market risk, credit risk, liquidity risk, and capital management.

33 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

The Audit Committee’s principal role is to apply due diligence in • Reviewing and assessing credit risk. The credit departments ensuring that an effective risk management and control framework assess all credit exposures in excess of designated limits has been implemented by management. It is responsible for the prior to approving the facilities. Renewals and reviews of oversight of the design and implementation of internal controls facilities are subject to a similar process for commercial to support the risk management framework, the integrity of mortgages and business lending. financial reporting, and compliance with regulatory matters. • Establishing limits on the exposure to counterparties, The Audit Committee is assisted in these functions by Internal concentration in certain geographic areas and industries Audit. Internal Audit undertakes both regular and ad-hoc reviews (for loan advances), as well as limits by issuer, credit rating of risk management controls and procedures, the results of which band, market liquidity and country (for securities). are reported directly to the Audit Committee. • Developing and maintaining Vancity’s risk rating process in order to categorize risk according to the degree of (a) Credit risk management financial loss faced and to focus management on these (i) Credit risk risks. The risk rating system is used in determining where Credit risk is the risk of financial loss to Vancity if a member impairment provisions may be required. The current risk or counterparty of a financial instrument fails to meet its rating framework consists of ten grades reflecting varying contractual obligations, and arises primarily from Vancity’s degrees of risk of default and the availability of collateral loans, investments, securities and derivative instruments with or other credit mitigation. The responsibility for setting positive market values. The primary credit risk stemming risk grades lies with the final approving officer/committee from loans is the possibility that members will be unable or as appropriate. Risk grades are subject to regular review unwilling to repay some or all of the principal amount and by Vancity group commercial mortgage and business risk interest they have borrowed. For investments, securities and management committee. derivative instruments, the credit risk Vancity is exposed to is • Reviewing compliance of business units with agreed the risk of default by the counterparty. exposure limits; including those for selected industries, (ii) Management of credit risk country risk and product types. Regular reports are The Board of Directors has delegated responsibility for the provided to the credit departments and the FPC on governance of credit risk to the FPC to specifically oversee the credit quality of local portfolios and appropriate credit risk. The FPC separates credit responsibilities by lines corrective action is taken. of business: commercial mortgages, business lending, and • Each credit department is required to implement credit retail lending. The Committee is responsible for managing policies and procedures, with credit approval authorities credit risk through the following: delegated from the Chief Credit Officer. Each business • Formulating and recommending credit policies in unit has a department head who reports on all credit- consultation with business units. These policies provide related matters to local management for monitoring and guidance over collateral requirements, credit assessment, controlling all credit risks in its portfolios, including those risk ratings assessments for commercial mortgages and subject to central approval. business lending , as well as a framework for reporting, • Regular audits of business units and the credit department and ensuring appropriate legal documentation is processes are undertaken by Internal Audit. completed. The policies ensure that the lending processes (b) Liquidity risk management are compliant with regulatory and statutory requirements. Liquidity risk is the risk that Vancity may be unable to generate These policies are reviewed at minimum annually. or obtain sufficient funding in a timely and cost effective manner • Establishing authorization limits for the approval to meet commitments associated with its financial instruments and renewal of credit facilities. Authorization limits are and operations. assigned to business unit credit officers for commercial mortgages and business lending. Retail lending Management of liquidity risk is dependent on the credit scoring process that is Vancity’s approach to managing liquidity is to ensure that it will supported by centralized credit officers. Large credit always have sufficient liquidity to meet its liabilities when due, facilities require the approval by the FPC or the Board under both normal and stressed conditions, without incurring of Directors as directed by policy. unacceptable losses or risking damage to Vancity’s reputation. Vancity’s liquidity risk is subject to extensive risk management controls and is managed within the framework and policies and limits approved by the Board. On an annual basis the Board of

34 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

Directors through the FPC reviews and approves the liquidity Exposure to liquidity risk policy presented by management to ensure adherence to The key measure used by Vancity for managing liquidity risk regulatory requirements. The Asset and Liability Committee is the ratio of liquid assets to deposits. (ALCO), oversees the operational adherence to the liquidity For this purpose, liquid assets may comprise the total market policy. ALCO approves liquidity management processes and value of cash, Canadian or provincial treasury bills, debt securities strategies presented by treasury and finance management in with a government guarantee and a minimum Dominion Bond addition to overseeing adherence to minimum liquidity limits, Rating Service (DBRS) investment rating A, guaranteed mortgage eligibility requirements for liquid assets, funding diversification, backed securities, banker’s acceptances and bearer deposit notes deposit concentration and diversification limits. from Schedule I and II banks with a DBRS rating of R-1 low The daily management of Vancity’s liquidity is the or higher, and corporate commercial paper with a DBRS rating responsibility of the treasury department under the direction of of R-1 low or higher. the VP, Treasury and Foreign Exchange. The finance department Vancity’s ratio of liquid assets to deposits at the reporting date monitors treasury’s adherence with liquidity policies and on a and during the reporting period were as follows: monthly basis reports all findings to ALCO. Treasury manages 2008 2007 liquidity by monitoring expected daily cash inflows and outflows At December 31 14.74% 9.72% versus actual, projecting long-term cash requirements weekly Average for the period 11.26% 9.99% and monthly, and by developing channels for a diverse source of Maximum for the period 14.75% 10.90% funding. Vancity’s primary sources of funding are wholesale and Minimum for the period 10.53% 9.10% retail deposits, and wholesale borrowings. Contingency plans exist for liquidity to satisfy funding Liquid assets 2008 2007 requirements in the case of a general market disruption Cash and deposits with or adverse economic conditions. Proper execution of the Central 1 Credit Union $ 1,106,835 $ 881,252 contingency plan is the responsibility of the treasury department. Securities (1) 629,865 208,717 The liquidity policy outlines the appropriate steps to follow and 1,736,700 1,089,969 stakeholders to notify. The contingency plan is scenario tested Total liquid assets as a annually, and the results are presented to the Board. percentage of deposits 14.74% 9.72%

(1) Balance does not include securities that are not liquid, such as the asset backed commercial paper.

Cash flows payable under financial liabilities by remaining contractual maturities are as follows: Less than 1 - 3 4 to 5 Over 5 No fixed 1 year years years years maturity Total At December 31, 2008 Retail deposits $ 5,902,279 $ 937,1 65 $ 279,514 $ 411 $ 3,054,490 $ 10, 1 73,859 Wholesale deposits 1,624,810 20 1 - - - 1,625,01 1 Borrowings 1,698, 172 - - - - 1,698,1 72 Financial liabilities 317,264 - - - 906 318, 1 70 Derivatives 16,374 17,352 - - - 33,726 $ 9,558,899 $ 954,718 $ 279,514 $ 411 $ 3,055,396 $ 13,848,93 8

35 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

(c) Market risk management by reviewing the interest rate risk profile of Vancity and by In the normal course of its operations, Vancity engages in reviewing and approving limits and strategies recommended transactions that give rise to market risk. Market risk is the risk by the treasury department. that changes in market prices, such as interest rates, foreign (iv) Interest rate risk measurement techniques exchange rates and credit spreads will affect Vancity’s income Vancity uses a number of techniques to manage interest or the value of its holdings of financial instruments. The objective rate risk. In order to manage the repricing of assets and of market risk management is to manage and control market liabilities, Vancity will alter the product mix through the risk exposures within acceptable parameters, while optimizing marketing of particular products, pricing initiatives, and the return on risk. the use of derivative instruments. Decisions on determining (i) Management of market risks the appropriate mix of assets, liabilities and derivative The Board through the FPC sets risk tolerance levels for instruments, including interest rate swaps and forward rate Vancity. Within these boundaries, ALCO measures, monitors agreements, is based on economic conditions, member and manages Vancity’s interest risk profile. The policies for behaviour, capital levels, liquidity levels and policies that limit market risk management are reviewed annually by ALCO, exposure by instrument and counterparty. and approved by the FPC and the Board of Directors. Note 18 discloses details on derivatives used for asset Vancity has various policy and procedures statements liability management. that specify roles and responsibilities for senior management, Vancity also uses several comprehensive measurement and treasury, trading management, traders, finance, and compliance. analytical techniques to manage and control interest rate risk. Many of these policies fall under the responsibility of the FPC. Interest rate risk is measured primarily by simulation models The Committee’s role is to provide effective oversight on that employ both current interest revenue and interest behalf of the Board of Director’s of Vancity’s financial reporting expense, and use market values to incorporate an economic in compliance of regulatory matters. In addition, Vancity has perspective. Static gap and duration analyses are also used as developed and maintains a practice of performing independent supplementary measurement, control and management tools. valuations of positions, mark-to-market methodologies, and (v) Simulation models asset liability modeling. Simulation models enable Vancity to analyze interest rate (ii) Interest rate risk management risk in a dynamic environment. The models incorporate Interest rate risk, inclusive of credit spread risk, is the risk assumptions about pricing strategies, growth, volume and of loss to Vancity due to the following: changes in the level, mix of new business, changes in the level, slope and curvature slope and curvature of the yield curve; the volatility of of the yield curve, interest rates and other related factors. interest rates; the maturity profile of assets and liabilities; The assumptions used in the model are monitored and updated mortgage prepayment rates; changes in the market price at least quarterly to reflect changing market conditions. of credit; and the creditworthiness of a particular issuer. Simulation models can also be run to measure the impact For Vancity, mismatches in the balance of assets, liabilities on net interest income and market values of potential asset and off-balance sheet financial instruments that mature and and liability management strategies in different economic reprice in varying reporting periods generate interest rate environments to analyze risk and return tradeoffs. risk. These mismatches will arise through the ordinary course Simulation models are also used to measure the potential of business as Vancity manages member portfolios of loans impact of interest rate movements on market value of equity and deposits with changing term preferences and through and financial margin. Based on Vancity’s interest rate positions the strategic positioning of Vancity to enhance profitability. as at December 31, 2008, the following table shows the potential before-tax impact on Vancity’s financial margin over the next (iii) Interest rate risk policies and processes 12 months of an immediate and sustained 100 basis points Vancity meets its objectives for interest rate risk management increase and decrease in interest rates across all currencies. by structuring the balance sheet to take advantage of the yield curve and mismatch opportunities while limiting risk Market Financial exposure to approved levels to ensure that net interest value margin income and net market values are not significantly impacted Interest rate sensitivity impact impact when there is an adverse change in interest rates. Before tax impact of: The treasury department, under the direction of ALCO, 100 bps decrease in rates 62,532 (4,756) is responsible for managing interest rate risk. ALCO monitors 100 bps increase in rates (54,312) 2,173 Vancity’s compliance with policy through monthly meetings

36 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

The market value risk technique gauges the impact on the Vancity is exposed to foreign currency risk each time market value of both financial assets and financial liabilities it buys and sells foreign currency products to a member as well as off balance sheet instruments from a movement in or to another financial institution. Vancity holds a foreign interest rates. Market value risk is the present value of potential currency position that is exposed to the risk of exchange change in financial margin over all future periods. It is an rates movements in either the spot or forward market. economic measure of a leading indicator of the potential impact This exposure has the potential of having a negative effect on future earnings of an adverse movement in interest rates. on earnings. Vancity is exposed to this risk unless the foreign currency position is economically hedged, either naturally (vi) Interest rate risk analysis or synthetically. The impact of foreign currency risk will Gap analysis is a technique used by Vancity for asset liability result from the volatility of exchange rate changes, the mix management to assess interest rate risk. It comprises aggregating of foreign currency assets and liabilities, and the exposure cash flows into repricing periods and then checking if the cash to each currency market. flows in each period nets to zero. The repricing periods are time periods, based on either repricing dates or maturity dates of the (viii) Foreign currency risk policies and procedures assets and liabilities. An interest rate gap is a positive or negative Foreign currency risk is managed daily by the Foreign Exchange net cash flow for one of the periods. Gap analysis does not take department under the direction of the VP, Treasury and into consideration the credit risk of assets and liabilities. Foreign Exchange. The Foreign Exchange department develops Duration analysis is a measure of interest rate exposure and implements management policies and processes with and provides an indication of when on average the present the approval of ALCO. The finance department monitors value of any financial instrument will be received. Vancity compliance to the foreign exchange policy on a monthly basis. uses duration analysis to measure the sensitivity of asset Foreign currency forwards and futures are used to limit and liability market values to a change in interest rates and exposures to positions held by Vancity. Gains and losses on provides an indication of long term interest rate exposure. foreign exchange are measured monthly. Limits on global trades by currency in the spot and forward markets, and limits (vii) Foreign currency risk management by traders are established through ALCO approved policies Foreign currency risk is the risk that a movement in foreign and monitored on a daily basis. Note 18 discloses details on exchange rates will have an adverse effect on the financial foreign currency forwards and futures used to manage foreign condition of Vancity. Foreign currency risk arises in the exchange risk. ordinary course of business as Vancity meets the retail demands for foreign currency banking and trading activities.

6. Securities (a) An analysis of the fair value of securities by remaining term to maturity is as follows 2008 2007 Effective Within 1 to 5 Over 5 Total Total yield 1 year years years fair value fair value Securities held as AFS assets Securities issued or guaranteed by: Canadian federal government 1.14% $ 491,087 $ - $ - $ 491,087 $ 70, 133 Canadian provinces and municipalities 0.91% 35, 1 62 - - 35, 1 62 20,813 Mortgage-backed securities 3.95% 1,752 - - 1,752 8,034 Bank-sponsored commercial paper 1.50% 100,000 - 2,229 102,229 5,232 Other securities 3.60% 10,00 1 - 52,609 62,610 168,156 Total AFS assets at fair value $ 638,002 $ - $ 54,838 $ 692,840 $ 272,368

37 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

(b) Impairment of securities benchmarks, historical trends and other factors that a market Within AFS securities as at December 31, 2008 were two categories participant would consider for such investments. Where there is of impaired asset-backed commercial paper (ABCP) investments: no observable market data, management has used estimates that $52.6 million of third-party non bank sponsored ABCP with a it believed to be reasonable. Continuing uncertainties regarding face value of $76.4 million; and bank-sponsored ABCP of $2.2 million the value of assets that underlie the ABCP and the nature of with a face value of 3.0 million. During 2008, $10.7 million the current third-party non-bank sponsored ABCP restructuring (2007 - $13.9 million) was recorded in the consolidated statement process could give rise to a further change in the value of the of earnings with respect to the impairment. ABCP. The effect of a 10% change in the key assumptions on The fair value of this ABCP has been determined by the size of the write-downs would result in a further adjustment management based on a model that assesses the specific of $2.7 million. underlying composition of assets in each ABCP trust held and Included in the valuation is an estimate for the residual categorizes them into classes with similar risk characteristics. For value of accrued interest on the ABCP as of December 31, 2008. each class of assets, Management applied the best, average and Subsequent to the year end, the non-bank sponsored ABCP worst case scenarios to determine values. These values were then restructuring plan was closed on January 21, 2009. At that time, weighted, based on management’s estimates of probabilities for the ABCP was exchanged for long term notes and $2.3 million each scenario and used to arrive at management’s best estimate in cash. At this point, the market for the restructured long-term of fair value. In carrying out this assessment, management relied notes is not expected to be active. on best available information regarding market conditions, proxy

7. Loans (a) Loan maturities and rate sensitivities Maturity term Rate sensitivity Under 1 to 5 5 to 10 2008 Fixed 2008 1 year years years Total Floating rate Total Residential mortgages $ 3,376,337 $ 3,010,868 $ 57,583 $ 6,444,788 $ 1,962,212 $ 4,482,576 $ 6,444,788 Commercial loans 712,069 563,029 300,037 1,575,135 592,290 982,845 1,575,1 35 Consumer loans 2,713,531 134,917 1,404 2,849,852 2,677,946 171,906 2,849,852 Business loans 575,693 837,000 60,831 1,473,524 294,423 1,1 79,1 0 1 1,473,524 Total loans 7,377,630 4,545,814 419,855 12,343,299 5,526,87 1 6,816,428 12,343,299 Allowance for credit losses 52,202 32, 1 65 2,97 1 87,338 39,107 48,231 87,338 Total loans, net of allowance for credit losses $ 7,325,428 $ 4,513,649 $ 416,884 $ 12,255,961 $ 5,487,764 $ 6,768,197 $ 12,255,961

Maturity term Rate sensitivity Under 1 to 5 5 to 10 2007 Fixed 2007 1 year years years Total Floating rate Total Residential mortgages $ 3,399,478 $ 3,811,478 $ 82,077 $ 7,293,033 $ 1,105,188 $ 6,1 87,845 $ 7,293,033 Commercial loans 654,895 533,193 294,437 1,482,525 543,336 939,1 89 1,482,525 Consumer loans 2,370,127 130,877 1,61 1 2,502,615 2,239, 1 45 263,470 2,502,615 Business loans 450,988 861,860 64,780 1,377,628 83,26 1 1,294,367 1,377,628 Total loans 6,875,488 5,337,408 442,905 12,655,80 1 3,970,930 8,684,87 1 12,655,80 1 Allowance for credit losses 39,009 30,450 2,510 7 1 ,969 22,602 49,367 71,969 Total loans, net of allowance for credit losses $ 6,836,479 $ 5,306,958 $ 440,395 $ 12,583,832 $ 3,948,328 $ 8,635,504 $ 12,583,832

38 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

(b) Allowance for credit losses 2008 2007 Residential Commercial Consumer Business Total Total Balance, beginning of year $ 13,223 $ 16,983 $ 24,497 $ 17,266 $ 71,969 $ 64,161 Provision for credit losses: Normal credit factors 277 (578) 891 26,518 27,1 08 19,023 Mortgage fraud recovery - - - - - (2,700) 277 (578) 891 26,518 27,1 08 16,323 Loans written-off (1,830) - (10,480) (1,1 50) (13,460) (10,663) Recoveries of loans written-off - - 1,648 73 1,72 1 2,1 48 Balance, end of year $ 11,670 $ 16,405 $ 16,556 $ 42,707 $ 87,338 $ 71,969 Loans with specific allowances: Loan balance $ 2,342 $ 3,338 $ 100 $ 26,069 $ 31,849 $ 30,535 Related allowance (1,484) (250) (100) (6,608) (8,442) (8, 1 31) Carrying amount $ 858 $ 3,088 $ - $ 19,46 1 $ 23,407 $ 22,404 Loans with general allowances: Loan balance $ 6,442,446 $ 1,571,797 $ 2,849,752 $ 1,447,455 $ 12,311,450 $ 12,625,266 Related allowance (10,1 86) (16,1 55) (16,456) (36,099) (78,896) (63,838) Carrying amount $ 6,432,260 $ 1,555,642 $ 2,833,296 $ 1,411,356 $ 12,232,554 $ 12,561,428 Loans on which the accrual of interest has been discontinued $ 26,468 $ 17,794 $ 14,972 $ - $ 59,234 $ 31,724

In the fourth quarter of 2007, management issued $4.5 million in non-recourse loans to members for exposure to investments in asset-backed securities. An allowance of $885,000 has been set up against these loans to account for an impairment caused by the disruption in the credit and liquidity markets. Settlement on these loans was received in January 2009. (c) Loans past due but not impaired Loans that are past due but not classified as impaired are loans where our customers have failed to make payments when contractually due, but for which management expects that the full amount of principal and interest payments will be collected. Loans that are past due but not impaired as at December 31, 2008 are as follows: 30 to 59 60 to 89 90 days days days or more Total Residential mortgages $ 31,737 $ 14,512 $ 32,514 $ 78,763 Commercial mortgages 18,615 - - 18,615 Consumer loans 15,512 4,707 20,052 40,27 1 Business loans 670 62 1,492 2,224 $ 66,534 $ 19,281 $ 54,058 $ 139,873

8. Loan securitizations and sales Vancity periodically raises liquidity through securitization and sale of residential and/or commercial mortgages. The total outstanding residential mortgages sold and removed from the balance sheet at December 31, 2008 were $1,315 million (2007 - $847 million). Vancity retains the responsibility for servicing the assets securitized and sold. Any gain or loss that results from the sale of assets is recorded in other interest income in the period the sale occurs.

39 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

New activity during the year: 2008 2007 Residential mortgages: Loans sold $ 835,063 $ 364,918 Net cash proceeds received 841,632 362,449 Retained rights: cash reserves ‑ 2,469 future excess (deficit) interest 16,584 (2,346) Pre-tax gain (loss) on sale 20,025 (2,346) Key assumptions at date of sale: Average term to maturity 4.0 years 4.89 years Prepayment rate (%/year) 20% 20% Excess spread 2.65% 0.69% Discount rate 2.14 - 4.69% 4.48% - 4.85%

9. Premises and equipment 2008 2007 Accumulated Net book Net book Cost amortization value value Land $ 13,505 $ - $ 13,505 $ 11, 1 1 2 Buildings 55,475 19,238 36,237 28,349 Leasehold improvements 32,456 15,134 17,322 16,1 03 Computer equipment and software 75,208 60,1 1 5 15,093 9,38 1 Furniture and fixtures 20,270 14,835 5,435 6,105 $ 196,914 $ 109,322 $ 87,592 $ 71,050

Lease commitments: 11. Shares Vancity has leases on certain branch premises for terms 2008 2007 extending to 2018. The future minimum lease payments for Membership shares $ 57,290 $ 59,615 each of the next five fiscal years and thereafter are as follows: Investment shares 39,287 39,394 2008 Savings shares 4,263 5,574 2009 $ 10,401 $ 100,840 $ 104,583 2010 9,246 Members are required to purchase $5 of membership shares and 2011 7,689 are from time to time allowed to purchase investment shares. The 2012 6,91 1 retraction or redemption of these shares may be subject to certain 2013 5,358 restrictions. Current outstanding investment shares earn dividends at 2014 and thereafter 5,945 a quarterly adjusted rate set at least 1% above the three to five year $ 45,550 Government of Canada bond yields. Deposits held in membership and investment shares are not 10. Other assets guaranteed by the Credit Union Deposit Insurance Corporation 2008 2007 of British Columbia (CUDIC). Central 1 Credit Union shares $ 32,684 $ 32,38 1 Accounts receivable, prepayments and other 192,1 1 0 180,076 Future income tax assets (note 15) 26,778 16, 1 76 $ 251,572 $ 228,633 The investment in the shares of Central 1 is required under operating agreements. Central 1 provides a centralized financial facility, a payment clearing house and a trade association for the Credit Unions of BC and Ontario.

40 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

12. Business combinations components of capital and consists primarily of share capital and Vancity acquired the assets and assumed the liabilities of Greater retained earnings adjusted for future income taxes. Tier 2 capital Victoria Savings Credit Union (GVSCU) on February 1, 2008. The fair consists of 50% of a credit union’s portion of retained earnings value of net assets acquired of $6.8 million has been reported on in CUDIC, Central 1, and Stabilization Central Credit Union. Total the consolidated balance sheet as contributed surplus. The members regulatory capital is defined as the total of Tier 1 and Tier 2 capital of GVSCU exchanged membership and savings shares for Vancity less deductions as prescribed by FICOM. membership and savings shares. Regulatory ratios are calculated by dividing total capital by RWA, These transactions were recorded using the purchase method. The which are weighted according to relative risk (0% and 150%) and are following summarizes the estimated fair value of the net assets acquired: determined by FICOM prescribed rules relating to on balance sheet and off-balance sheet exposures. 2008 Vancity monitors capital levels on a regular basis via appropriate GVSCU management and Board committees. Capital plans are updated on Assets acquired: a yearly basis as part of Vancity’s normal budgeting cycle and are Cash and investments $ 9,617 forecasted over a three year period to ensure an appropriate level of Loans 54,1 64 capital is maintained to sustain operations. As at December 31, 2008, Other assets 6,063 Vancity’s capital ratio was greater than the minimum requirement. 69,844 Liabilities assumed: 2008 2007 Deposits 61,463 Capital Other 1,576 Tier 1 Capital: 63,039 Equity shares $ 105,880 $ 104,618 $ 6,805 Credit union’s own retained earnings 605,056 561,219 13. Distributions to community and members Deferred income 2008 2007 tax credits (debits) (18,407) (12,073) Donations to community and Other 29,275 22,469 Vancity Community Foundation $ 6,160 $ 3,666 Total Tier 1 Capital 721,804 676,233 Membership share dividends 5,396 1,184 Tier 2 Capital Patronage rebates 3,768 4,002 50% of Vancity’s proportion of Total shared success 15,324 8,852 retained earnings in CUDIC, Investment share dividends 1,653 1,970 Central 1 and Stabilization Central Credit Union 67,438 65,67 1 Total distributions to community and members $ 16,977 $ 10,822 Total Tier 2 Capital 67,438 65,67 1 Total capital $ 789,242 $ 741,904 Patronage rebates paid to members are calculated based on loan interest received by Vancity, deposit interest paid by Vancity, member 15. Income taxes funds under administration with Credential Asset Management (CAM) 2008 2007 and home insurance purchased by members. The rebates relating to (restated - loan interest received amounted to $0.8 million (2007 - $0.9 million), note 4) to deposit interest paid amounted to $2.1 million (2007 - $2.2 million), Components of the provision to member funds under administration with CAM amounted to of income taxes: $0.7 million (2007 - $0.8 million) and to home insurance purchased Current income tax expense $ 22,364 $ 6,797 $0.1 million (2007 - $0.1 million). Future income tax (recovery) expense (10,602) 248 $ 11,762 $ 7,045 14. Regulatory capital and capital ratios The effective tax rate of the provision for income taxes is different Capital levels for credit unions in British Columbia are regulated than the combined federal and provincial statutory income tax rates pursuant to guidelines issued by the Financial Institutions for the following reasons: Commission of British Columbia (FICOM), based on standards issued by the Bank for International Settlements. Minimum capital 2008 2007 standards are based on a total capital to risk weighted assets (RWA) Combined federal and provincial ratio of 8%, along with a requirement that at least 35% of its capital statutory income tax rate 31.0 % 33.8 % base consist of retained earnings. Credit Union rate reduction (21.7) (25.0) Regulatory capital is allocated to two tiers: Primary (Tier 1) Non-deductible and other items 10.7 9.0 and Secondary (Tier 2). Tier 1 comprises the more permanent 20.0 % 17.8 %

41 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

The tax effects of temporary differences which give rise to the net 16. Pension and other retirement benefits future income tax assets reported in other assets are as follows: Vancity provides pension benefits to employees through defined contribution, defined benefit, supplemental retirement and 2008 2007 multi-employer defined benefit plans. Other post-retirement benefits, Future income tax assets: including life insurance, health care, dental benefits or cash alternatives Allowance for impairment of loans $ 18,258 $ 11,607 are provided to eligible Vancity employees upon or after retirement. Deferred revenue 3,759 1,748 Vancity funds the defined benefit plans and multi-employer Accrued employee future benefits 4,620 2,918 defined benefit plans based on actuarially prescribed amounts. Other accrued expenses 2,999 1,541 The unfunded supplemental retirement and non-pension benefit Premises and equipment 1,516 1,745 plans are paid directly by Vancity at the time of entitlement. Tax loss carry forward 4,408 - Retirement benefits for the defined contribution plan are paid 35,560 19,559 by Vancity on an annual basis. Future income tax liabilities: The accrued benefit obligation and plan assets were actuarially Deferred expenses (8,782) (3,383) measured for accounting purposes as of October 31, 2008 (prior Net future income tax assets $ 26,778 $ 16,1 76 period was measured at October 31, 2007). The effective date of the last actuarial valuation report for funding purposes was December 31, 2008 and the effective date of the next required actuarial valuation report will be December 31, 2011.

Pension plans Other benefit plans 2008 2007 2008 2007 Accrued retirement plan obligations: Opening balance, actuarial benefit liabilities $ 18,393 $ 16,855 $ 16,955 $ 16,360 Benefits paid (1,785) (293) (832) (622) Current service cost 1,104 1,340 1,733 1,675 Contributions paid by employees 49 51 - - Interest cost on accrued benefit obligation 994 913 957 887 Actuarial gains (4,216) (473) (5,064) (1,345) Actuarial benefit liabilities at measurement date $ 14,539 $ 18,393 $ 13,749 $ 16,955 Fair value of retirement benefit plan assets: Opening balance, fair value of plan assets $ 14,949 $ 13,375 $ - $ - Employer contributions 901 744 832 622 Employee contributions 49 51 - - Benefits paid (1,785) (293) (832) (622) Actual return on plan assets (2,120) 1,072 - - Fair value of plan assets at measurement date $ 11,994 $ 14,949 $ - $ - Funded status – plan deficits $ 2,545 $ 3,444 $ 13,749 $ 16,955 Contributions between November 1 and December 31 (121) (9) - - Unamortized net actuarial gains (losses) (144) (1,222) 3,239 (1,841) Unamortized past service cost (252) (302) - - Accrued benefit liabilities at December 31(1) $ 2,028 $ 1,91 1 $ 16,988 $ 15, 1 14 Total retirement benefit plan expense: Defined benefit plans $ 1,045 $ 2,307 $ 2,631 $ 3,052 Multi-employer defined benefit plans 1,996 1,782 - - Defined contribution plans 5,1 59 4,803 - - Retirement benefit plan expenses $ 8,200 $ 8,892 $ 2,631 $ 3,052

(1) The net accrued benefit liabilities is recorded in accounts payable and other accrued liabilities on the balance sheet. Vancity uses a variety of assumptions in the measurement of the accrued benefit obligations, benefit costs and health care costs. These assumptions include: discount rates for future cash flows, rates for compensation increases, expected long term rates of return on plan assets and health care costs trend rates.

42 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

The weighted-average of significant actuarial assumptions used to determine benefit expenses and accrued benefit obligations are as follows: Pension plans Other benefit plans 2008 2007 2008 2007 Estimated average service period of active employees (in years) 8.0 8.0 13.0 13.0 Discount rate at end of year (1) 7.25% 5.50% 7.25% 5.50% Expected long-term rate of return on plan assets 7.00% 7.00% - - Rate of compensation increase 3.75% 4.00% - - Assumed overall health care cost trend (2) - - 10.00% 10.00%

(1) The discount rate is based on the market interest rates as of October 31, 2008 on high quality corporate bonds with cash flows that match the timing and amount of expected benefit payments. (2) Trending to 5% in 10 years and remaining thereafter. Sensitivity of assumptions: Key weighted-average economic assumptions used in measuring the pension benefit liability, the other benefit plans liability and related expenses are outlined in the following table. The sensitivities in each key variable have been calculated independently of changes in other key variables. Pension plans Other benefit plans Accrued benefit Benefit Accrued benefit Benefit obligation expense obligation expense Discount rate 7.25% 5.50% 7.25% 5.50% Impact of: 1% increase $ (1,709) $ (200) $ (1,597) $ (260) 1% decrease 2,107 244 1,989 286 Rate of compensation increase 3.00% 3.75% - - Impact of: 0.25% increase $ 3 $ 24 - - 0.25% decrease (2) (20) - - Expected rate of return on assets - 7.0% - - Impact of: 1% increase - $ (146) - - 1% decrease - 145 - - Assumed overall health care cost trend rate(1) - - 10.0% 10.0% Impact of: 1% increase - - $ 1,382 $ 292 1% decrease - - (1,226) (328)

(1) Trending to 5% in 10 years and remaining thereafter.

Plan assets, as of the measurement date, were invested as follows: 2008 2007

Equity securities 56% 57% Debt securities 38% 37% Other 6% 6% 100% 100%

43 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

17. Interest rate sensitivity Variable rate assets that are related to the prime rate or Interest rate risk is a measure of how sensitive Vancity’s financial position is other short term market rates are reported in the within three to movements in interest rates. To manage interest rate risk, Vancity uses month category. swaps and other derivative instruments. The determination of interest Fixed rate and non-interest bearing assets with defined maturity rate sensitivity or gap position encompasses numerous assumptions. It is are reported based on expected account balance behavior. based on the earlier of the repricing date or the maturity date of assets, (b) Liabilities liabilities and derivative instruments used to manage interest rate risk. Fixed rate liabilities, such as term deposits, are reported at The gap position presented is as at December 31 of each year. scheduled maturity with estimated redemptions that reflect It represents the position outstanding at the close of the business expected depositor behavior. day and may change significantly in subsequent periods based on Interest bearing deposits on which the member interest member behavior and the application of Vancity’s asset and liability rate changes with prime or other short term market rates management policies. are reported in the within three months category. The assumptions for the year ended December 31, 2008 and 2007 Fixed rate and non interest bearing liabilities with no were as follows: defined maturity are reported based upon expected account (a) Assets balance behavior. Fixed term assets, such as residential mortgage loans (c) Yields and consumer loans, are reported based on scheduled Yields are based on the effective interest rates for the assets repayments and estimated prepayments that reflect and liabilities on December 31. expected borrower behaviour.

Within 3 Months 1 to 2 2 to 3 3 to 4 Over 4 Non-interest Yield 3 months to 1 year years years years years sensitivity Total December 31, 2008 Assets: Cash and cash equivalents $ - $ - $ - $ - $ - $ - $ 148,478 $ 148,478 Deposits and securities 3.17% 1, 1 1 2,1 1 7 309,060 106,974 95,076 27,970 - - 1,65 1, 1 97 Loans 4.87% 5,949,261 1,799,520 1,557,997 1, 1 87,274 917,288 844,62 1 - 12,255,96 1 Other 33,170 6,070 14,339 28,509 1,680 36,774 355,555 476,097 7,094,548 2, 1 1 4,650 1,679,310 1,310,859 946,938 881,395 484,033 14,53 1,733 Liabilities and equity: Deposits 2.85% 4,289,056 4,992,980 912,799 855,208 385,784 350,304 - 11,786, 1 3 1 Borrowings 2.91% 1,691,087 ------1,69 1,087 Other 61 7,199 8,084 21,634 - - 1,017,537 1,054,515 5,980,204 5,000,179 920,883 876,842 385,784 350,304 1,017,537 14,53 1,733 Asset/liability gap 1, 1 1 4,344 (2,885,529) 758,427 434,017 561,154 531,091 (513,504) - Notional amounts of derivatives 85,000 (320,000) (695,000) (95,000) - 1,025,000 - - Interest rate gap position $ 1, 1 99,344 $ (3,205,529) $ 63,427 $ 399,017 $ 561,154 $ 1,556,09 1 $ (513,504) -

December 31, 2007 Assets: Cash and cash equivalents $ - $ - $ - $ - $ - $ - $ 148,677 $ 148,677 Deposits and securities 4.37% 509,007 203,975 187,580 22,039 27,127 55,215 - 1,004,943 Loans 5.73% 4,254,148 2,920,614 2,022,932 1,384,697 920,249 1,081,192 - 12,583,832 Other ------369,075 369,075 4,763,155 3, 1 24,589 2,210, 512 1,406,736 947,376 1,136,407 517,752 14,106,527 Liabilities and equity: Deposits 3.62% $ 3,963,239 $ 5, 1 1 6,974 $ 914,636 $ 560,69 1 $ 345,616 $ 307,233 $ - $ 11,208,389 Borrowings 4.99% 1,909,547 ------1,909,547 Other ------988,59 1 988,59 1 5,872,786 5, 1 1 6,974 914,636 560,69 1 345,616 307,233 988,59 1 14,1 06,527 Asset/liability gap (1,109,63 1) (1,992,385) 1,295,876 846,045 601,760 829,174 (470,839) - Notional amount of derivatives 1,175, 1 25 560,452 (990,91 1 ) (611,190) (42,483) (90,993) - - Interest rate gap position $ 65,494 $(1,431,933) $304,965 $ 234,855 $ 559,277 $ 738,181 $ (470,839) $ -

44 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

18. Derivative instruments Current Notional amounts replacement cost Fair values Maturities of Derivatives Total Total Within 1 year 1 to 5 years 2008 2007 2008 2007 2008 2007 Derivatives used to manage interest rate risk Receive fixed interest current swaps $ 545,000 $ 175,000 $ 720,000 $ 970,000 $ 14,474 $ 831 $ 14,474 $ (1,224) Receive fixed interest forward starting swaps - 2,22 1,680 2,22 1,680 1,464,700 73,984 8,403 73,984 7,9 1 8 Pay fixed interest current swaps 470,000 460,000 930,000 1,87 1,560 - 770 (36,948) (11,637) Pay fixed interest forward starting swaps - - - 820,000 - 491 - (3,575) 1,015,000 2,856,680 3,871,680 5,1 26,260 88,458 10,495 51,510 (8,518) Other derivatives Foreign exchange future/ forward sell contracts (14,450) - (14,450) 33,59 1 413 483 (158) 171 Foreign exchange future/ forward buy contracts 22,1 1 8 - 22,11 8 111,380 2,095 3,317 1,283 3,150 Forward rate deposit agreements - 140,000 140,000 - 6,643 - 6,643 - Index-linked call options purchased 4, 124 7,689 11,813 12,814 212 2,97 1 374 2,969 11,792 147,689 159,48 1 157,785 9,363 6,77 1 8,142 6,290 Total derivative contracts $ 1,026,792 $ 3,004,369 $ 4,031, 1 61 $ 5,284,045 97,82 1 17,266 $ 59,652 $ (2,228) Less impact of master agreements 27,642 7, 1 63 Net credit risk on derivatives $ 70,179 $ 10,1 03

Notional amounts are the contract amounts used to calculate the Foreign currency futures are contractual obligations to buy or sell cash flows to be exchanged. They are a common measure of volume a foreign currency on a future date at a specified price established of outstanding transactions but do not represent credit or market on an organized exchange. Similar to interest rate futures, they are risk exposure. subject to daily fluctuations for any change in market value. Fair values based on quoted market prices are not available for a Forward foreign currency exchange contracts are tailor made significant portion of Vancity’s derivative instruments. Consequently, foreign currency futures, negotiated between two counterparties, fair values are derived using present value and other valuation to buy or sell a specific amount of foreign currency at a certain rate, techniques and may not be indicative of the net realizable values. on or before a certain date. Interest rate swaps are transactions in which two parties Index-linked call options are equity contracts to pay or receive exchange interest flows on a specified notional amount for a cash flows based on the increase or decrease in the underlying index predetermined period, based on agreed upon fixed and floating or security. rates. Notional amounts are not exchanged. The credit risk amount of derivatives, which represents the Forward rate agreements are effectively tailor made interest current replacement cost of all outstanding over the counter rate futures, negotiated between two counterparties, which call derivative contracts in a gain position without factoring in the for a cash settlement at a future date for the difference between impact of master netting agreements, totalled $97.8 million as at a contractual rate of interest and the current market rate, based December 31, 2008 (2007 - $17.3 million). Vancity manages this credit on a notional amount. risk by dealing with creditworthy counterparties and setting specific limits for investments with those counterparties, which are reviewed on a monthly basis.

45 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

Interest income and expense include the release from AOCI not be realized in an actual sale or immediate settlement of of the gain or loss relating to the effective portion of qualifying the instruments. Interest rate changes are the main cause of changes hedging derivatives designated as cash flow hedges as the hedged in the fair value of Vancity’s financial instruments. The carrying item is recorded in interest income (expense). The release composes value is a reasonable approximation of fair value for Vancity’s cash the amount that is reported as a reclass from AOCI to net earnings. resources, demand deposits, certain other assets and certain other No gains and losses were released from AOCI to net earnings liabilities, due to their short-term nature. as a result of discontinuance of a hedge. As described in Note 4, (a) Loans Restatement, Vancity did not meet the requirements of HB 3865 In determining the fair value of loans, Vancity incorporates Hedges for certain derivatives that were used to manage interest rate the following assumptions: risk. Further, Vancity was precluded from applying hedge accounting For fixed rate and floating rate performing loans, fair values are for a portion of 2008 and gains of $39.2 million are recorded in other determined by discounting remaining contractual cash flows at interest income and expense on the statement of consolidated earnings. current market interest rates offered for loans with similar terms, From time to time, Vancity enters into derivative transactions adjusting for estimated prepayments expected. to economically hedge certain business strategies that do The total value of loans determined using the above not otherwise qualify for hedge accounting, or where hedge assumption is reduced by the allowance for credit losses accounting is not considered economically feasible to implement. to determine the fair value of Vancity’s loan portfolio. For 2008, $60.6 million (2007 - $3.0 million) was recorded in other interest income as unrealized changes in fair value of (b) Securities these derivatives. In addition, other interest expense consists of The fair value of AFS securities is determined by using quoted $22.4 million (2007 - $1.7 million) in realized losses on derivatives. market values when available. For securities where market quotes are not available, Vancity uses estimation techniques 19. Fair value of financial instruments to determine fair value. These estimation techniques include Due to the judgement used in applying a wide range of acceptable discounted cash flows, internal models that utilize observable valuation techniques and estimates in calculating fair value amounts, market data or comparisons with other securities that are values are not necessarily comparable among financial institutions. substantially the same. Where there is no observable market Fair value amounts disclosed represent point in time estimates data, such as with the ABCP, referred to in Note 6, management that may change in subsequent reporting periods due to market used estimates that it believes to be reasonable. conditions or other factors. Where there is no quoted market value, (c) Derivative instruments fair value is determined using a variety of valuation techniques and The fair value of derivative instruments is determined by using assumptions. Vancity has estimated fair values taking into account quoted market benchmark rates from an independent source. changes in interest rates and credit risk that have occurred since Vancity uses a valuation method that includes discounted cash the assets and liabilities were acquired. These calculations represent flows on the remaining contractual life of a derivative instrument, management’s best estimates based on a range of methodologies and valuation models that use observable market data. and assumptions; since they involve uncertainties, the fair values may

46 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

(d) Deposits In determining the fair value of deposits, Vancity incorporates the following assumptions: - For fixed rate, fixed maturity deposits, Vancity discounts the remaining contractual cash flows, adjusted for expected redemptions, at market interest rates offered for deposits with similar terms and risks. - For floating rate deposits, changes in interest rates have minimal impact on the fair value since deposits reprice to market frequently. On that basis, fair value is assumed to equal carrying value. 2008 Total Fair value carrying HFT non-trading Total value Variance Assets Cash and cash equivalents $ 148,478 $ - $ 148,478 $ 148,478 $ - Interest-bearing deposits - 963,525 963,525 958,357 5,168 Securities - 692,840 692,840 692,840 - Loans: Residential mortgages - 6,57 1,337 6,571,337 6,444,788 126,549 Commercial mortgages - 1,660,255 1,660,255 1,575, 1 35 85, 120 Consumer loans - 2,879,219 2,879,219 2,849,852 29,367 Business loans - 1,515,71 1 1,515,7 11 1,473,524 42,187 Allowance for credit losses - (87,338) (87,338) (87,338) - Total loans net of allowance for credit losses - 12,539,184 12,539,184 12,255,96 1 283,223 Derivative instruments 96,788 - 96,788 96,788 - Other assets - 146,905 146,905 146,905 - Liabilities Deposits - 11,885,237 11,885,237 11,786, 1 3 1 (99,106) Wholesale borrowings - 1,691,093 1,69 1,093 1,691,086 (7) Derivative instruments 37,1 36 - 37, 1 36 37, 1 36 - Other liabilities - 318, 1 70 318, 1 70 318, 1 70 - Total fair value adjustment $ 189,278

2007 Total Fair value carrying HFT non-trading Total value Variance Assets Cash and cash equivalents $ 148,677 $ - $ 148,677 $ 148,677 $ - Interest-bearing deposits - 734,108 734,108 732,575 1,533 Securities - 272,368 272,368 272,368 - Loans: Residential mortgages - 7,285,030 7,285,030 7,293,033 (8,003) Commercial mortgages - 1,485,670 1,485,670 1,482,525 3, 1 45 Consumer loans - 2,488,052 2,488,052 2,502,615 (14,563) Business loans - 1,385,098 1,385,098 1,377,628 7,470 Allowance for credit losses - (71,969) (71,969) (71,969) - Total loans net of allowance for credit losses - 12,57 1,881 12,57 1,881 12,583,832 (11,951) Derivative instruments 16,382 - 16,382 16,382 - Other assets - 134,955 134,955 134,955 - Liabilities Deposits - 11,244,753 11,244,753 11,208,389 (36,364) Wholesale borrowings - 1,909,657 1,909,657 1,909,547 (110) Derivative instruments 18,610 - 18,610 18,610 - Other liabilities - 365,014 365,014 365,014 - Total fair value adjustment $ (46,892)

47 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

20. Credit risk: (i) Credit risk exposure: The following information represents the maximum exposure to credit risk before taking into consideration any collateral or credit enhancements. For financial assets recognized on the balance sheet, the exposure to credit risk is their stated carrying amount. For loan commitments, the maximum exposure is the full amount of the undrawn facilities. December 31, 2008 On balance sheet Off balance sheet Total exposures exposures exposures Cash and securities $ 1,799,675 $ - $ 1,799,675 Loans 12,255,961 - 12,255,961 Other 361,727 - 361,727 Undrawn Lines of Credit - 3,746,657 3,746,657 Commitments to Extend Credit - 380,095 380,095 Undrawn credit on credit cards issued - 1,105,029 1,105,029 Documentary Letters of Credit - 45,776 45,776 Maximum exposure $ 14,417,363 $ 5,277,557 $ 19,694,920

(ii) Collateral and other credit enhancements: grades reflecting varying degrees of risk of default, staff oversight, Cash, Securities and Other Assets have a low credit risk exposure and the availability of collateral or other credit enhancements. as the majority of these assets are high quality investments with These risk ratings can be grouped as follows: low risk counterparties. For the retail loan portfolio, Vancity’s Risk rating Risk rating descriptions underwriting methodologies and risk modeling is customer based rather than product based. Vancity reviews the customers capacity 11 - 21 Minimal to Normal Risk: Account is identified to to repay the loan rather than relying exclusively on collateral, be low or normal risk and requires minimal staff although it is an important mitigant of credit risk. Decisions on oversight - low risk of default. consumer loans are based on an overall assessment of credit risk 22 - 32 Acceptable or Qualified Risk: Account has utilizing a scoring model that takes into account factors such as acceptable levels of risk with a potential for a Beacon scores and debt levels relative to income. The table below heavier reliance on asset security. Staff activities provides a distribution of Vancity’s loans and undrawn facilities by maintain a certain level of oversight based on Beacon score; however it does not take into consideration others industry business practices. factors that may mitigate exposure to credit risk: 41 - 52 Account Requires Management Involvement or Risk category Beacon score range 2008 is Substandard: Account is identified to be of higher risk driven by a material adverse change, High less than 620 $ 825,641 deterioration of the financial situation of the Medium 620 – 720 3,166,359 customer, or major security deficiencies. Low greater than 720 5,302,640 Total $ 9,294,640 The credit quality of Vancity’s non-retail portfolio, expressed in The non-retail portfolio utilizes an assessment process that terms of the internal risk ratings discussed above is shown in the measures credit risk, taking into consideration a number of factors table below: such as the borrower’s management, current and projected financial Internal risk ratings 2008 results, industry statistics, and economic trends that cumulates 11 – 21 $ 460,021 into a risk rating. This risk rating categorizes risk according to the 22 – 32 2,551,180 degree of financial loss faced and forces management to focus on 41 – 52 37,458 these risks and helps determine where impairment provisions may $ 3,048,659 be required. The current risk rating framework consists of internal

48 Vancity Annual Report 2008

Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

Collateral for the loan portfolio is dependent on the type of loan one year and maturity dates extending to 2013. The deposit as follows: commitments are classified as derivatives and have a fair value of • Residential Loans: Mortgages secured by residential real estate, $6.6 million at December 31, 2008. • Consumer Loans: Loans secured by other personal assets (c) Pledged assets pledged; and In the normal course of business, Vancity pledges mortgage • Commercial & Business Loans: Mortgages, charges over assets and readily marketable securities to secure credit and commercial or business properties or charges over other clearing facilities. Asset pledging transactions are conducted assets such as land, equipment, inventory and receivables. under terms that are common and customary to standard Fair values of collateral held as security are not disclosed as it is not derivative and other financing activities. Standard risk practical to do so. For loans that are neither past due nor impaired, management controls are applied with respect to asset pledging. information relative to collateral or the credit risk of the customer is The following tables summarize Vancity’s pledged assets, to regularly updated or reviewed. whom they are pledged and in relation to what activity. (iii) Concentration of credit risk: 2008 2007 Concentrations of credit risk exist if a number of borrowers are Securities $ 5,881 $ 5,803 engaged in similar economic activities or are located in the same Mortgages 375,890 345,617 geographic region, and indicate the relative sensitivity of Vancity’s General charge 454,000 380,000 performance to developments affecting a particular segment of Total assets pledged $ 835,771 $ 731,420 borrowers or geographic region. Geographic credit risk exists for Vancity due to its primary 2008 2007 service area being generally in the Lower Mainland of British Assets pledged to: Columbia and surrounding areas. As well, Vancity’s principal Central 1 Credit Union $ 47,050 $ 50,996 subsidiary, Citizens Bank of Canada, operates primarily in British Other financial institutions 788,721 680,424 Columbia and Ontario. Vancity’s loan portfolio has a geographic 835,771 731,420 concentration of 95.2% in British Columbia. Loans outside of British Assets pledged in relation to: Columbia are composed of 3.4% in Ontario and 1.4% in Alberta. Clearing facilities 31,000 31,000 To reduce the impact of the geographic credit risk, Vancity has Standby credit facilities 1,707,000 1,695,000 insured approximately 31% of its residential mortgages. (d) Guarantees 21. Commitments and contingencies As part of its regular operations, Vancity issues performance (a) Credit commitments guarantees for its development projects. At December 31, 2008, The following amounts represent the maximum amount of Vancity has an outstanding performance guarantee with the City additional credit that Vancity could be obligated to extend. of Victoria in the amount of $13.2 million (2007 - $17.6 million). These amounts are not necessarily indicative of credit risk as In addition, Vancity has a commitment to the City of Victoria many of these arrangements may expire or terminate without to subsidize affordable housing in a development project. At being utilized. December 31, 2008, the value of this commitment is estimated 2008 2007 at $3.4 million (2007 - $3.5 million). Undrawn lines of credit $ 3,746,657 $ 3,469,313 (e) Restricted cash Commitments to extend credit 380,095 949,852 In connection with its development projects, Vancity Undrawn credit on credit is holding restricted cash in the amount of $2.7 million cards issued 1,105,029 913,050 (2007 - $3.9 million) related to construction holdbacks and Documentary letters of credit 45,776 28,233 $2.3 million (2007 - $1.5 million) related to deposits on housing $ 5,277,557 $ 5,360,448 sales not yet conveyed. (b) Deposit commitments (f) Contingencies Under governing legislation, Vancity maintains, for liquidity In the ordinary course of business, Vancity has legal proceedings purposes, deposits with Central 1. Liquidity deposits totaled $1.1 brought against it and provisions have been included in liabilities million at December 31, 2008. From this total, Vancity has made where appropriate. It is the opinion of management that final Canadian dollar deposit commitments of approximately $140 determination of these claims will not have a material adverse million (2007 - $155 million) with Central 1. These commitments effect on the financial position or the earnings of Vancity. are at fixed rates ranging from 3.46% to 4.90% with terms of

49 Vancouver city Savings Credit Union Notes to the Consolidated Financial Statements (continued) (Tabular amounts expressed in thousands of dollars) Year ended December 31, 2008

22. Other information Loans are advanced to employees at interest rates that range from market rates for Vancity’s best members to half posted rates on five year terms. In addition, Vancity advances interest-free personal loans to employees to purchase computers. Employee loans are recorded at their fair value on the consolidated balance sheet with the difference between market values and carrying values being recognized as salary expense on the consolidated statement of earnings. As at December 31, 2008, the outstanding loans to employees amounted to: Fair value Book value 2008 2007 2008 2007 Residential mortgages $ 279,115 $ 292,179 $ 287,000 $ 296,000 Personal loans 14,000 400 14,000 400 $ 293,115 $ 292,579 $ 301,000 $ 296,400

23. Accumulated other comprehensive income (AOCI) AOCI is comprised of the following: 2008 Opening Ending balance Net change balance Gains (losses) on derivative instruments designated as cash flow hedges $ - $ 18,803 $ 18,803 Unrealized gains (losses) on available for sale securities 943 1,172 2,115 AOCI $ $ 943 $ 19,975 $ 20,918

2007 Opening Adoption of Ending balance new standard Net change balance Unrealized gains (losses) on available for sale securities $ - $ 349 $ 594 $ 943 AOCI $ - $ 349 $ 594 $ 943

50 Vancity Annual Report 2008 vancouver city savings credit union

board of directors 2008-2009 subsidiaries Patrice Pratt, Chair Citizens Bank of Canada Catherine McCreary, Vice Chair Jason Farris, President & Chief Executive Officer Lisa Barrett Inventure Solutions Inc. Doreen Braverman Catherine Aczel Boivie, Chief Executive Officer Elain Duvall Elizabeth Fletcher Inhance Investment Management Inc. Ian Gill Kerry Ho, Chief Executive Officer Kim Griffith Vancity Insurance Services Ltd. Wendy Holm Terry Taciuk, President Virginia Weiler Bob Williams Vancity Investment Management Ltd. Paul Savage, Vice President executive leadership team Vancity Capital Corporation Tamara Vrooman Lee Davis, Chief Executive Officer Chief Executive Officer Vancity Enterprises Ltd. Catherine Aczel Boivie Jim Cox, Chief Executive Officer Senior Vice President, Information Technology (until November 2008) Chris Dobrzanski Senior Vice President, Risk Management & Operations, associated organizations and Social Finance (interim) Vancity Community Foundation Brian Forward Derek Gent, Executive Director Vice President, Human Resources Karen Hoffmann board of directors attendance Corporate Secretary and Senior Vice President, Risk & Compliance In 2008, 10 of 11 directors attended 90% or more regular meetings of Vancity’s Board. The director who was only able to attend Rob Malli 75% of the regular scheduled meetings had made commitments Vice President, Finance prior to becoming a director. Special meeting attendance varied from 44% to 100% as these meetings may be called Paula Martin with 24 hours notice. Detailed attendance records are available Senior Vice President, Member Engagement on vancity.com, by request at 604.877.6549 or by email to Ellen Pekeles [email protected]. The attendance records are Senior Vice President, Strategy also published every two years in Vancity’s Accountability Report. Rick Sielski Senior Vice President, Member Services

51 vancity community branches and managers*

Abbotsford Mission Vancouver Victoria Michael Spuls Sara Vrabec 4th Avenue Blanshard Street Sarah Shellard Zeenat Ali Burnaby New Westminster Brentwood Kruger Chinatown Langford Maria Michayluk Patricia Sonier Grace Wong Jeremy Meckler

North Burnaby New Westminster Collingwood Saanich Josie Romeo & Ritu Linfoot Jeanette Crocker Gerry Collins Vacant

North Road North Vancouver Commercial Drive Scott Street Patricia Sonier Lynn Creek Phelan Jung Zeenat Ali Arlene Urlacher Royal Oak Downtown Victoria Jennifer Pecknold Lynn Valley Jan Dean Maria McLeod Arlene Urlacher South Burnaby Dunbar West Vancouver Peter Unadkat North Vancouver Dean Webster Franko Zaurrini Greg Letham South Slope Fairview White Rock Jas Parmar Westview Duncan McGuffie Semiahmoo Arlene Urlacher Ana Sawatzky Station Square Fraser Street Maryvonne Taft Pitt Meadows Jasvir Kheleh regional directors Jayne Perrault Debbie Bywater Telus Hastings Mohamed Ladak Christopher Singh Port Coquitlam Sheryl Ries David Perri North Side Keith Tongue Chilliwack Jenn Fahey Kerrisdale Ben Letkeman Kristin Yakumo squamish savings Shaughnessy Station Ian Cornish, General Manager Coquitlam Jenn Fahey Kitsilano Maillardville Ross Lambert Downtown Jag Gill Port Moody Tracey Kliesch Barry Osman Main Street Pinetree Aldina Graziano Highlands Tony Ciulla Richmond Tracey Kliesch Praveen Sidhu Marpole Delta Gabriella Bognar national contact centre North Delta Surrey Jean-Marc Hadfield, Mike Matsuo Cedar Hills Oakridge Vice President Hormus Karat Lily Wong Cherie Devisser** Tsawwassen and Dennis Pantazis, Directors Paul Cockshutt Guilford Point Grey Rup Sumal Susan Long Langley * as of February 2009 Langley Johnston Heights Vancity Centre ** Cherie Devisser is interim director for Paula Sonny Neilsen Marie Lewthwaite Janette Hunter MacFarlane, currently on maternity leave

Walnut Grove Newton Victoria Drive Sandeep Mann Jodh Dhaliwal Elaine Kennedy

Maple Ridge Surrey City Centre Westend Vanita Dennis Grace Saris Kathryn Fitzgerald

52 † Where 2008 targets were set, these are shown. “-“ indicates no targets were set. were targets no “-“ indicates shown. are these set, were targets 2008 † Where subsidiaries/affiliates. its and Union Credit the comprises Group Vancity * The summary ofourperformance 2006-2008 CO

earnings consolidated pre-tax 3years’ previous average %of donations: Corporate dollars) of (billions score loyalty Member Total assets Efficiency ratio Efficiency

service with satisfaction Member

index engagement Employee work to place agreat Being Total Key results indicators Key results environment and community the to benefit expertise and resources our we use % agree Total number of members/clients members/clients of Total number service outstanding Providing Net earnings Net dollars) of millions (consolidated, managers financial effective and responsible Being

Community leadership portfolio leadership Community by example Leading Public Personal members Personal Vehicle fleet Vehicle Employees use energy Premises Personal members members Personal Personal members members Personal by single occupancy vehicles occupancy by single work to/from commuting Employee and vehicle) and (air travel business Employee use Paper Employees All clients All Business members Business 2 equivalent emissions (metric tonnes) (metric emissions equivalent (2) (15) (15) (6) (19) (14) (9) (11)

(13) Vancity Credit Union Credit Vancity Vancity Group Group Vancity Group Vancity Vancity Credit Union Credit Vancity Group Vancity Vancity Credit Union Credit Vancity Citizens Bank Citizens Organization Vancity Group Vancity Vancity Insurance Insurance Vancity Vancity Credit Union Credit Vancity Group Vancity Group Vancity Vancity Group Vancity Vancity Credit Union Credit Vancity Vancity Group* Vancity Vancity Insurance Insurance Vancity Citizens Bank Bank Citizens Citizens Bank Bank Citizens Vancity Vancity (10) (10) (20) Performance ▼ n/a / ▲ ▲ ▼ ▼ ▲ ▲ ▼ ▲ ▲ ▲ ▼ ▲ ▲ ▲ ▲ ▼ ■ ■ ■ ■ ■ - - - - (12) / ■ 2008 targets 2008 10% increase 10% 6,000 84.4% n/a $38.3 60% 59% 82% 47% 93% 75% (18) (12) ------† 407,120 29,520 39,370 $14,532 85% $46.8 12.0% 2008 2,017 5,271 1,524 80% 40% 30% 56% 54% 62% 47% 57% 74% 894 81% 81% 792 $1.1 44 (7) (4) (3) (5) 5,524 388,000 $14,107 85.5% 36,900 2,146 1,482 25,200 $32.8 868 58% 2007 5.7% 88% 68% 89% 64% 50% 78% 47% 33% 992 n/a n/a (16,17) $1.1 36 (16) (16) (17) (8) (1) (1) (1) 355,000 2,390 24,600 $12,281 32,700 79.9% 54% 2006 $45.3 1,290 8.5% 84% 66% $0.9 47% 93% 75% 800 n/a n/a n/a n/a n/a (17) (8) - - - performance and impacts, visit vancity.com/accountability07. vancity.com/accountability07. visit impacts, and performance – projects development and investments and loans deposits, member/client Includes: (11) 2008. in introduced measure (10) Group emotional and intellectual employees’ measure to designed questions key six Comprises (9) insurance and purchasers insurance surveys: two of results weighted reflect to Re-stated (8) years. previous to comparable not and methodology in Change (7) member business replaces 2008; in introduced measure loyalty member business New (6) Greater with merger our of aresult as joined who members 3,085 includes total 2008 The (5) members Bank of number the counting for Methodology customers. Visa-only Excludes (4) Greater with merger our of aresult as joined who members 4,587 includes total 2008 The (3) after revenue bytotal divided donations) community (including expenses non-interest Total (2) explanation. for Statements Financial the 4to Note See re-stated. been has Data (1) (CO data emission GHG verified 2008 Our data. emissions GHG our verifying of process the in are and we verified externally been has data financial The ▼ ▲ ■ Legend andNotes performance from 2006-2008.For afuller picture The table (at left) provides asnapshot ofour accountability andtransparency inthebusiness world. around four-fifths agree they are concerned about Andmembers telland trust. as usthisisimportant, demonstrates accountability andbuilds loyalty our performance ina meaningful andcredible way decisions. We believe that managing andreporting performance inorder to make better-informed It provides uswithacomplete picture ofour employees, andthecommunities where we operate. influence our long-term success: ourmembers, keep ontop ofwhat matters most to those who Accountability reporting helps usunderstand and since 1998. why we have beenproducing accountability reports good for business, andtherightthingto do.Thisis term, sustainable approach to doingbusiness isboth economic, environmental, orsocial. Taking along- members andowners –for all ofourimpacts, bethey measure, disclose, andbeaccountable to you –our As afinancial co-operative we feel it’s important to to ourmembers we measure what’s important benefits. environmental and/or social have which products organization. the in involvement renewers. satisfaction. service 2008. February in Services Insurance Savings Victoria time. over data of comparability affects and 2008 in changed 2008. February in Savings Victoria better. is ratio efficiency alower general, In provision. loss loan 2007 since worsened has =performance 2007 since improved has =performance stable is =performance 2 e) will be published on Vancity’s website (vancity.com) once available. For more information on our economic, social and environmental issues, issues, environmental and social economic, our on information more For available. once (vancity.com) website Vancity’s on published be e) will know” “don’t responded 2007 in cent per 15 and 2008 in (20) 16 members of cent per more represent to tends statistically which members union’s credit the of survey (19) Panel growth (excluding tonnes 6,000 at emissions gas greenhouse our maintain (18) Specifically: CO improved using updated commuting employee for data 2007 and (17) 2006 verification. of aresult as updated (16) Data systems. accounting improved to due 2007 in broadened was collected data of scope (15) The January-December from changed data emissions energy premises for period reporting (14) The Victoria Greater and data) 2007 from (excluded Union Credit Squamish includes data (13) 2008 are profits net of cent per 30 program, Success Shared our Through applicable. =not (12) N/A [email protected]. efforts performance, orsustainability emailusat: have anycomments orsuggestions onourreporting Your input and feedback to isimportant us,so ifyou expectations for disclosure full ofourkey issues. and more accessible to readers, while meeting still looking at ways we can make ourreports shorter our Annual andAccountability We’re Reports. also key information more frequently, includingintegrating every two years, butwe’re exploring ways to report We currently produce anAccountability once Report business or purchasing decisions. environmental factors into account whenmaking it encourages you, asconsumers, to take social and other organizations to follow ourlead. We also hope positive impact reporting hasonourbusiness inspires and credibility, andwe hopeoursuccess andthe are widely recognized for their comprehensiveness improve ourperformance. Ouraward-winning reports employees, andspecific targets and commitments to successes andchallenges, theviews ofmembers and accountability07. Thisreport includesdata, ourkey 2006-07 Accountability onlineat Report vancity.com/ of ourperformance, view ourexternally verified answer. not did or members. Vancity and engaged institution) financial primary their is Vancity us tell who members (those primary acquisitions). and mergers through time. over comparability ensure time. over data of comparability the affect will This Report. Annual the in inclusion for data collect to time adequate allow to 2008 October-September to 2007 2008. February in merged we whom with Union, Credit Savings community. the to allocated is cent per 40 cent, per 30 the Of community. the and members with shared 2 to e factor

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